Focusing on the pure technical side of trading (leaving out the common obstacles of trading emotions and trading psychology), there are 3 keys to successful Forex trading and profitable trading strategies; Position Sizing, Win to Loss Ratios and Risk to Reward Ratios. This post and the linked video are dedicated to the importance of risk to reward (or reward to risk) and to help you understand how essential the principle is in profitable Forex trading.
A Key to Successful Forex Trading
Outweighing potential risk with potential reward is a key to profitable Forex trading. Ensuring that each trade has potentially a higher reward than potential risk allows Forex and other traders to have a lower Win to Loss ratio and still be profitable, strong risk to reward ratios can also stretch traders and potentially gain higher returns.
Banking big earning trades is not easy though, many traders struggle with letting profits 'run' and find high risk to reward trades emotionally challenging. My solution has always been to have a clear set of back tested rules that I can rely on, if I want to make money long term I have to stick to the rules, even if that means holding positions.
My Success Relies on High Reward to Risk Trades
Some of my Forex trading strategies only average a 40% win (on average only 4 out of 10 trades are profitable) but when trading a 1:3 risk to reward ratio I can potentially gain a return of 6% every 10 trades when risking 1% per trade (6 loses = -6%, 4 wins at 1:3 = 12%, -6% + 12% = 6% ROI).
If you haven't already, please check out my trading results, I owe my high returns to my ability to trade high risk to reward ratios, in the past I have banked as high as 1:10 risk to reward. You can learn more about my trading results by reading my Forex Trading Signals page and my Forex Trading Results page.
BIG Reward to Risk makes me Happy!
I am a very unemotional trader, loses don't change my emotional state, nor do winners... BIG winners do though! The greatest satisfaction I receive from any trading related activity is closing big profitable trades, I love it!
The video below demonstrates how powerful reward to risk trading can be...
Check out my other TRUTH about Forex Trading videos...
The TRUTH about PRICE ACTION TRADING
The TRUTH about MARKET MAKERS