How do you masterfully balance risk and reward in your forex trading strategy to ensure consistent profitability while safeguarding your capital?
“Cut your losses short and let your profits run”
This quote would the short answer. But, maybe I can elaborate a bit more based on my experience.
It’s good to cut your losses short but the flip side of it is that if you cut it too soon then you might have missed your biggest profit of the year. Not an ideal circumstances.
You must learn to hold your trades long but if you hold it too long, more often than not, it won’t go in your direction without any retracements (sometimes deep, sometimes a little) which can cause you become emotional (most people will). So, not ideal also.
The key to me is to find balance in this. It requires practice and experience. And you preferably not tweak it immediately because of your previous trade. For example, you’ve experienced a trade that reached your TP with 3R let’s say, but after it reaches your 3R, it retraced just for a bit then immediately shoot back up to if you’re holding it longer you would’ve get 10R instead of just 3R. The next trade, you held longer because of the 10R you’ve just saw. But this time, most of the trade that you try to hold reaches around 2-3R and then reverses completely. This is not good. So, to me, unless you’ve seen the 10R occurred many times than not, stick to just 3R instead. You can still get your 10R by winning with your 3R in about 3.33 times in a row.