This is one of the best articles I’ve come across about the benefits of using a solid Forex risk/reward system. The article is written by Scott Barkley from Synergistic Trading by TraderPlanet.com.
Scott writes about “retail traders break no trading rules more than the rules regarding risk and reward. We traders talk about risk and reward, and we say we trade with proper risk and reward, but reality is that we break these rules daily.”
“The simplest risk and reward rule is that you never trade greater than a 1:1 reward for risk ratio. This means that if your risk is 30 pips using a technical stop, then you must have a target that is at least 30 pips away from your entry even to entertain the thought of taking the trade. Obviously, a 1:2 or 1:3 ratio is better, but traders break the 1:1 rule all the time. How? We place a trade “thinking” there is a 1:1 ratio. For example, we risk 30 pips and the minute it falters or retraces (which it most certainly will do the vast majority of the time), we click out for 5 pips. We pat ourselves on the back having “conquered the market one more time” with a winning trade. We feel great – we are a winner!”
I hope the above currency trading article was of help to you.
Anthony DiChi at TradeCurrencyNow,
America’s Forex News and currency information source.