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fxbubba

Is there an ideal (and realistic) minimum risk/reward ratio I should keep in mind for each trade I make?

I understand risking only 1-2% of your bankroll in each trade. My question centers around setting stop loss points and take profit points.

I find myself making positive pips but still losing money because my winners I will cut short to ensure a win and my losers I will let run to the stop loss.

Is an ideal r/r ratio 1:1, 1:1.5, 1:2? I've seen forum posts and articles recommending higher ratios but I'm having difficulty finding situations that warrant, for instance, 20 pip stop losses(I think too small) and 60 pip take profits(sometimes too big).

I understand from a history in poker that betting 10 to win 5 will eventually break your bank account. I'm looking for the right amount to keep in mind so that in the future even though I might think I have the perfect trade setup I'll be able to pass if the risk/reward numbers don't add up.

Maybe I'll use the Golden Ratio = 1.618 :-)

over 2 years ago

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ForexNinja

There is no "ideal" r/r ratio. It all depends on which time frame you are trading and what kind of personality you have. If you are doing intraday trades, I find it best, personally, to do 1:1 to 1:1.5 risk-reward ration. For swing trades, I tend to do 1:3 to 1:4 risk-reward ratios.

If you find yourself cutting profits and letting losses run, try forcing yourself to do the opposite. Hold on to winners and let go of losers. Might work!

over 2 years ago

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Cyclopip

Hey there Bubba!

I think that if you are day trading, you should at least have a reward to risk ratio of 1:1. Many recommend that you have a greater one, because then you wouldn't have to have a win ratio of greater than 50% to be profitable. As for swing trading, some suggest having much higher ratios.

Also, one thing you can try is to have wider SL but have smaller units at stake. Yes, this will limit your potential profits but it can help give your trade more room to breathe.

As for you losing money despite making positive pips, I think the problem lies in that you aren't letting your profits run but you let losses hit your SL. One key thing to learn in trading is to cut your losses early. Yes, the SL is supposed to be the mark that invalidates your trade, but if you have a good feeling that you will SL, just cut your loss early and don't "hope" that prices reversing. Of course you never know what will happen, but you should be aware of the signals of when you should pull out. Also, I would suggest having two positions on a trade if possible. If you have two positions, you could close one to "ensure" your profits, while letting the other one run so that you can hit greater profits. Learning how to let your winning trades run is just as important as learning how to cut losses early.

over 2 years ago

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