Forex Reward to Risk Ratio Strategy
In Forex, sometimes you’ll win. Sometimes you’ll lose. Sometimes you’ll break even. That is trading in a nutshell. However, as long as you take good setups and if you trade with a minimum Reward to Risk Ratio of 2 to 1, your wins will outweigh your losses. In other words, every time you win, you score 2 points. Every time you lose, you only lose -1 point. So even if you lose half of your trades, you will still win in the long run.
Here is an example. Let’s say you took 10 trades. Half the trades were winners at 2 points each. Half the trades were losers at -1 point each. 5 wins multiplied by 2 points equals 10 points of wins. 5 losses multiplied by -1 point equals -5 points of losses. Now you take your 10 points of wins and subtract it from your -5 points of losses and that equals a net total of 5 points in wins. To reiterate the concept, your wins will outweigh your losses if you trade with a minimum Reward to Risk Ratio of 2 to 1. So even if you lose half your trades, you’ll still be a winner at the end.