Trading with 1:3 Risk Reward Ratio

Hi all traders,

I am a trend follower and I am identifying the market top & bottom with the trend lines, fib levels or using support & resistant level. However as a part time trader I am looking at Daily, 4H time frames.

At the beginning, I was always looser. But now I am comfortable at trading and many times the market is going as expectation. But many times I am closing my ongoing trades before it hit the tp or sl. When I am looking at the fundamental news of the day, if I am feeling any doubt, I always tend to close my ongoing trades.

Now I am thinking to trade with the 1:3 Risk Reward ratio to avoid that. But still I am feeling that this is not practical at my trading. Because I have big tp and sl limits with my time frame. So my trades will take 3 or 4 days to hit my tp level. During this days central bank releases, candlestick patterns will tell different stories which are not good for my current trades. So why should I hold my trade till it hit my tp or sl.

Please give me some advice for that…

You should definitely not wait for your trades to hit TP. Just figure it out with how much profit you are satisfied according your strategy and enter your stop loss there to protect your profits. If the trade continue going your way, even better, if not you are protected.

If you are a trend follower then you should be doing exactly that - following the trend. Trend followers make the largest portion of their profits by getting into and staying with big, sustained moves. They do not have TP levels, they don’t worry about the news, and their stop (trailing or otherwise) is generally meant to be set at a point where it is likely the trend would be over if that level is reached.

It’s OK to trade in a different fashion, of course, but that wouldn’t properly be considered trend following. Sounds to me like you would be considered more of a swing trader. Clarifying things for yourself my tend to help you out.

Yes you may be right. But keep in mind that risk reward is relative to your trading style. You find a style you like then tweak your risk reward to benefit to your style. The tighter your stop the more likely it is going to hit and the opposite for your take profit the lower your take profit the more likely it is going to hit.

Aside from what the other folks already mentioned it could also depend on the pair you are trading and whether or not its average daily or weekly range is within your profit targets or stop loss levels. It’s good to have a reward to risk ratio in mind in order to increase your expectancy for your trades, but you also have to be ready to book profits, exit early, or adjust your risk ahead of top-tier market events like the central bank releases you mentioned.

+1, well written rhody. This makes me think if a self-proclaimed trend follower was unaware of it, was that trader really a trend-follower? Just some food for thought.