News & Analysis at your fingertips.

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.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
Subscribe
Please try again
EUR/USD
Bearish
Oil - US Crude
Bullish
Wall Street
Bearish
Gold
Mixed
GBP/USD
Bearish
USD/JPY
Bullish
More View more
Real Time News
  • $USDCHF is continuing to strengthen today, now trading above the 0.9300 level. The pair is currently at its highest point since last July after three weeks of continued strength, rising from 0.8900 in mid February to its current levels. $USD $CHF https://t.co/WCVGdCvLFq
  • Hey traders! Wrap up your week with a quick update on #NFP and more from @DailyFX Chief Strategist @JohnKicklighter 👇 https://t.co/zrOo2scbiE
  • US, EU said to reach deal to suspend Boeing-Airbus tariffs. $USD $EUR
  • #Silver hit a fresh one month low today. The precious metal is currently trading right around the 25.00 level, its lowest point since late January. $XAG $SLV https://t.co/DhVcp7ULYO
  • 🇷🇺 Inflation Rate YoY (FEB) Actual: 5.7% Expected: 5.5% Previous: 5.2% https://www.dailyfx.com/economic-calendar#2021-03-05
  • Forex Update: As of 15:00, these are your best and worst performers based on the London trading schedule: 🇨🇦CAD: 0.06% 🇨🇭CHF: -0.10% 🇯🇵JPY: -0.11% 🇦🇺AUD: -0.41% 🇳🇿NZD: -0.41% 🇬🇧GBP: -0.44% View the performance of all markets via https://www.dailyfx.com/forex-rates#currencies https://t.co/N9GeMoaLjM
  • Indices Update: As of 15:00, these are your best and worst performers based on the London trading schedule: FTSE 100: 0.24% Wall Street: 0.07% US 500: -0.34% France 40: -0.55% Germany 30: -0.67% View the performance of all markets via https://www.dailyfx.com/forex-rates#indices https://t.co/XcycPxwwyi
  • Heads Up:🇷🇺 Inflation Rate YoY (FEB) due at 16:00 GMT (15min) Expected: 5.5% Previous: 5.2% https://www.dailyfx.com/economic-calendar#2021-03-05
  • US Indices are currently mixed, paring their earlier morning gains as the trading session advances. The Nasdaq continues to lead the decline. DOW +0.08% NDX -1.41% SPX -0.32% RUT -0.95% $DIA $QQQ $SPY $IWM
  • Rising bond yields keep the USD supported as market sentiment turns negative BTC/USD looking vulnerable to further downside pressure. Get your $btc market update from @HathornSabin here:https://t.co/XyrDPZ13N7 https://t.co/xVbeYd4DHh
Using Risk Reward Ratios in Trading

Using Risk Reward Ratios in Trading

Richard Krivo, Trading Instructor

Student’s Question:

I see the logic behind the risk reward ratio and the 5% rule, but why must there be an upside limit other than to see if the momentum is sufficient? Why not just enter the trade with a trailing stop? Risk is reduced as the trade matures, and there is a possibility for more pips. What am I missing?

Instructor’s Response:

You make a valid observation…

To set a risk reward ratio, an upper limit must be present so that the Risk Reward Ratio can be determined in the first place. Both the stop and the limit must present for the ratio to exist.

Another issue has to do with emotions. Without a limit in place, should the trade surpass the 1:2 ratio level, a little bit of greed (or a lot of it) may kick in and the trader may decide to let the trade run. Not having a predetermined exit strategy, the trade may retrace to a level below where the limit would have been set initially, thereby cutting into potential profits. This can occur even with a trailing stop in place. Depending of course on how the stop was set to trail price action.

Here are two things that I do in this situation...1) When/if the trade reaches half the distance to the limit (profit target) I have set, I move the stop to breakeven thereby eliminating risk on the trade.2) I will usually trade multiple lots. This affords me another option. I can do what I suggested above and move my stop to breakeven half way to my profit target. In addition, I can close half the positions that I am trading when the 1:2 RRR is reached to lock in profit.

On the remaining open positions I then move the stop to breakeven and manually trail the stop at a very respectable distance should the trade continue to progress in the intended direction. As long as the trade continues in my direction, I can continue to trail my stop and capture additional profit.

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

DISCLOSURES