Thursday, July 24, 2014

Forex Strategy With 1:3 Risk Reward Ratio

April 3, 2012 by  
Filed under Forex FAQ


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%.

For example:

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 Trend Line Strategy, 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.

Besides trend line strategy, you can also trade breakout strategy or trend trading strategy as these strategies also has a very good risk reward ratio.

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.

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Comments

One Response to “Forex Strategy With 1:3 Risk Reward Ratio”
  1. Julian says:

    Thanks for your answer Kelvin. I’m familiar with what you’re saying and the fact that larger moves do not happen daily. However I’d still wish you would go into more detail as to how to better *TIME* the beginning/commencement of a move based on larger timeframes such as daily, 8H, 4H. I’m mostly concentrating on the 4H and by looking at past data it’s clearly noticeable that for the most part the market reverses when reaching key resistance (overbought) or support levels (oversold). Is there one indicator(s) you would recommend to better time WHEN the market will begin to reverse from a resistance or support level on the 4H chart?

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