Risking more than you stand to gain will kill you, UNLESS you have a consistently reliable strategy with a WIN-LOSS RATIO much larger than 1:1.

• Example 1: Let’s say that your strategy has a proven track-record of 70 winning trades out of every 100 trades. And let’s say that your average winner is +20 pips, and your average loser is -30 pips (as in your question, above). This strategy offers positive expectancy; that is, it will produce consistent profits over the long term, so long as you maintain your 70:30 win-loss ratio, and your 3:2 risk-reward ratio.

• Example 2: Suppose, instead, your strategy has a track-record of 55 winning trades out of every 100. And let’s say that your R:R ratio remains at 3:2 (risk greater than reward). Now, you have a losing system. That is, your system (strategy) has a negative expectancy.

Here’s the formula:

[B]Expected profit (or loss) =

(Number of winning trades) x (Average winner) - (Number of losing trades) x (Average Loser)[/B]

• In example 1, Expected P/L = (70) x (20) - (30) x (30) = 500.

This answer means: 500 pips profit per 100 trades, per lot traded.

• In example 2, Expected P/L = (55) x (20) - (45) x (30) = -250.

This answer means: 250 pips loss per 100 trades, per lot traded.

For this strategy, any win-loss ratio lower than 60:40 would produce overall losses, long-term.

If you are just starting your forex trading career, you probably do not have a tested and proven strategy, with a track-record of consistent wins. For you, it’s important that you NOT use reverse risk-reward ratios.

[B]DO NOT try to dictate to the market what the probable risk and probable reward will be on any trade. Let the market tell you those probabilities.[/B]

Here’s something I wrote recently on how to determine stop-losses and profit targets — 301 Moved Permanently