In today forex faq, we have a question from our fellow traders asking a question that arises from my previous forex faq on “what is wrong with my forex strategy”
Below is the question:
How can I base my trading on a 1:3 risk reward ratio when I’m only occasionally able to catch the larger moves?
In fact, you already have the answer to the above question. Most or in fact all new traders tend to have the thinking that they have to trade everyday. In fact, you guys have got it wrong, you do not need to trade everyday and still able to grow your account by 20 to 40%. What you need is the occasional large movement that gives you the 1:3 ratio.
On average, you just need to trade 6 – 8 trades every month with such a ratio and you are able to grow your account by 20 to 40%.
You have $50,000 in your account and you trade with 3% every trade which is equivalent to $1,500 per trade.
Let says that you win 4 trades and lost 4 trades every month with 1:3 risk reward ratio.
5 Winning Trades = 4 x $4,500 = $18,000
3 Losing Trades = 4 x $1,500 = $6,000
You are making $12,000 per month which is equal to 24% growth to your account.
So the question here is what type of strategy has this risk reward ratio?
For those of you who has purchased my Forex course, you will find that it has such a ratio. When the price breaks the short term trend line and eventually hits the medium to long term trend line, it is usually about 1:3 to 1:4. However if you are looking to trade everyday, you will be disappointed as the trend line strategy is not meant to give you 2 to 3 trades everyday.
If you already have the above strategy on hand, all you need is to practice it on a demo account until you are able to execute them with precision and you will be able to make money for yourself every month.
I hope that I have answered your question and if you guys have anything to share, do feel free to give your comments below.