Wed. Nov 13th, 2019

Forex InfoBook

Get Smart, Get Profitable

Golden Rule of Trading : Risk/Reward

Traders should have a clear purpose for trading.  Most want win against the markets, but the real goal should to be to make profits. You can win just 50% of the time, but still take money home by gaining more than you lose. Consider the systems in the below table :

With a negative R/R of 1:10 Strategy A will need to have a win rate of over 92% to be successful, which is  nearly impossible. Systems with R/R better than 1:1 will have a positive expectancy and lower trading costs (spreads and commissions). Cut losers short, let winners run.

Strategies that implement this basic rule are most successful in the long run. Every trading strategy is governed by the golden rule.  Almost every commercial automated trading strategy flouts this basic rule to make trading seem easy and effortless.

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