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Tuesday, June 20, 2017

Reward to Risk Ratio: Should I Care?

What is Reward to Risk Ratio in Forex Trading?

Simply said, Reward is the potential profit while Risk is the potential loss. How does it work? Let’s say you open a position in Eur/Usd, you put the stop loss to 30 pips of your opening position and you put your profit limit to be 60 pips from your opening position. 

In this case, you will have 60:30 = 2:1 Reward to Risk Ratio.

Is it good?

Well, if you browse around the internet, you will find a lot of articles that recommend you to have 3:1 Reward to Risk Ratio.

So does it mean that you have a BAD strategy just because you have such Reward to Risk Ratio?
I tell you one thing. Those articles that you can find on the internet, telling you to have 3:1 Reward to Risk Ratio, all of them are written by Article Writers. NOT FOREX TRADERS!

I personally never implement that rule since in a real life forex trading, 3:1 will only happen in a fairy tale stories.

I even know lots of professional traders who often make 1:5 Reward to Risk Ratio and in the end they can make a lot of profit and make a decent living from his/her profit.

The most important thing to be considered for me is to control your Capital. Make a forex strategy that risks you maximum only 2% of your own capital.

This is the best way to control your money. If you are confident with your strategy and you know exactly what to do either if you are right or wrong about your own prediction, then you shouldn’t be afraid even when you have 1:5 Reward to Risk Ratio.