Just wanted to take a moment and say hello to everyone on this site. I have been reading babypips for quite some time, and have graduated from the school of pipology a few times over. I have read a few books, and have been running a demo account for 2 weeks now. I finally decided to break my shyness and register on the forums. I never really know what to say on a first post, so forgive my awkwardness.
Anyways, as I was putting my “trading plan/system” together, I was reviewing the money management portion of my plan, and happen to come arcoss the Risk to Reward ratio portion of the pipology school.
Now, I understand the concept of making sure the risk to reward is 3:1 - my questions is, what determines that? What makes a specific trade have more of a reward? What elements am I looking for to achive this?
I hope this question somewhat makes sense, as I am having a difficult time putting the question into words.
Any help or explanation would be appriciated. And If you have nothing else to say, than just a friendly hi works for me as well.
One way would be to determine your stop loss versus your take profit. For instance after some experience with your plan, you may find something like you have to have stop loss of at least -20 pips for the trade to breath and can potentially and regulary hit +40 pips when the trade goes well. A 2:1 ratio.
You can’t really determine this ahead of your trading strategy. You can try to plan to have it happen that way. Once you’ve done some trading with your strat then you go over your records and determine how the ratio actually averaged out.
Welcome to the forum and don’t be shy. There is a good answer (and a few bad ones) to almost any question you have concerning fx here. You just have to ask! Eventually it will start coming together for you (us) and then you can turn around and help the confused and wayward.