We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

Free Trading Guides
EUR/USD
Mixed
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Oil - US Crude
Mixed
Wall Street
Bearish
Gold
Bullish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
GBP/USD
Mixed
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
USD/JPY
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
More View more
Real Time News
  • While the Dollar's tumble is one of the more impressive moves in the broader markets at the moment - its run is bearish. Its bullish counterpoint was the Aussie Dollar. Impressive move across board, but $AUDJPY's 2-day rally is biggest since July 2016 https://t.co/YtpXVs3bKP
  • Gold currently trades around $1,740/oz. and looks set to push higher if the sell-off in the US dollar continues. Get your $gld technical analysis from @nickcawley1 here:https://t.co/oFwLhi2XB8 https://t.co/nFQcplaexS
  • Commodities Update: As of 18:00, these are your best and worst performers based on the London trading schedule: Oil - US Crude: -0.25% Gold: -0.81% Silver: -1.73% View the performance of all markets via https://www.dailyfx.com/forex-rates#commodities https://t.co/IKRKgZf2ha
  • IG Client Sentiment Update: Our data shows the vast majority of traders in Ripple are long at 96.98%, while traders in US 500 are at opposite extremes with 72.99%. See the summary chart below and full details and charts on DailyFX: https://www.dailyfx.com/sentiment https://t.co/Q4CoU5iGAD
  • Indices Update: As of 18:00, these are your best and worst performers based on the London trading schedule: Wall Street: 0.72% US 500: 0.50% Germany 30: 0.39% France 40: 0.37% FTSE 100: 0.13% View the performance of all markets via https://www.dailyfx.com/forex-rates#indices https://t.co/r0ZOaGGpwp
  • US tech stocks turn positive in afternoon trading, following the Dow Jones and SP500 into positive territory https://t.co/stt1JvXAaH
  • Update on #Cryptocurrencies #BITCOIN -0.91% #BITCOINCASH +1.48% #ETHEREUM -1.58% #RIPPLE -1.35% #LITECOIN -2.48%
  • $AUDUSD pushes further into multi-month highs this morning as risk appetite improves https://t.co/jCjpOT2kbP
  • IG Client Sentiment Update: Our data shows the vast majority of traders in Ripple are long at 96.98%, while traders in US 500 are at opposite extremes with 73.36%. See the summary chart below and full details and charts on DailyFX: https://www.dailyfx.com/sentiment https://t.co/ZZhiVDU0Ey
  • The #Euro Stoxx 50 has made a firm break away from its 50% fib retracement to trade at its highest level since early March. Get your equities market update from @JMcQueenFX here:https://t.co/TeIdfHjbUj https://t.co/IPSBuPQ3YF
The Importance of the Risk:Reward Ratio

The Importance of the Risk:Reward Ratio

2010-06-11 15:06:00
Thomas Long, Course Instructor
Share:

Of course we can’t answer that as we don’t know how much each trader makes when they are right compared to how much they lose when they are wrong.  So the win percentage is not the most important factor in trading.  I’m sure that we would all like to win most of our trades, but if our goal is to be profitable, then there is more to the equation.  It is called the risk:reward ratio and is one of the most important aspects of money management and a key to becoming a consistently profitable trader.  Let’s take a look at some examples:


If you risk 100 pips and look for 300 pips in profit, your risk:reward ratio is 1:3 or one pip of risk for every three pips in potential profit.

If you risk 100 pips and look for 200 pips in profit, your risk:reward ratio is 1:2 or one pip of risk for every two pips in potential profit.

If you risk 100 pips and look for 100 pips in profit, your risk:reward ratio is 1:1 or one pip of risk for every one pip in potential profit.

If you risk 100 pips and look for 50 pips in profit, your risk:reward ratio is 2:1 or two pips of risk for every one pip in potential profit.

If you risk 100 pips and look for 25 pips in profit, your risk:reward ratio is 4:1 or four pips of risk for every one pip in potential profit.


So trader A would not be profitable using a 4:1 risk:reward ratio while maintaining a win percentage of 75%.  On the other hand, trader B using a 1:2 risk:reward ratio while maintaining a win percentage of 40% is a profitable trader.  I would recommend that new traders use a 1:2 risk:reward ratio in their trading.  If you open a trade with a risk of 50 pips, then try to get twice that or 100 pips in profit.  I would also recommend moving your protective stop up to breakeven when the market moves halfway to your target.  An example of this would be if you bought at 1.2500 and placed your protective stop at 1.2450, your risk is 50 pips.  Using a 1:2 risk:reward ratio means placing your limit order to take profits at 1.2600 for a potential gain of 100 pips.  When the market moves up halfway to your target which would be the 1.2550 level, you move your protective stop  from 1.2450 up to your entry level of 1.2500.  At this point, you can only win or break even on the trade.  Then you can spend your time looking for the next trading opportunity instead of following the current trade.
 

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES

News & Analysis at your fingertips.