What is Best Risk Reward Ratio Forex Trading

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What is Risk Reward Ratio in Forex Trading
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Index

• What is a Risk Reward Ratio?
• Use a Risk Reward Ratio
• Types of Risk Reward Ratio

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What is a Risk Reward Ratio?

• The risk-reward ratio is simply a calculation of
  how much you are willing to risk in the trade,
  versus how much you plan to aim for as a profit
  target.
• To keep it simple, if you were making a trade and
  set your take profit at 20 pips, your risk-reward
  ratio would be 520 or 14.
• You are risking your five pips for the chance to
  gain 20 pips.

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Use a Risk Reward Ratio

• The basic theory for the risk-reward ratio is to
  look for opportunities where the reward outweighs
  the risk.
• The higher the possible rewards, the more failed
  trades your account can withstand at a time.
• Think about it this way, and if you were to use
  the example above and have a successful trade, it
  buffers you against four losing trades with the
  same ratio.

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• The idea of using an excellent risk-reward ratio
  is to put the odds in favour.
• If you consistently did the 520 ratio, you could
  lose half of your trades and still make a fair
  profit.
• Typically, risk reward is beneficial when the
  price is near important support or resistance.

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• Example
• If EUR/USD is in a downtrend and price has
  delayed near resistance and could be posting the
  lower high, the risk reward would likely favour
  a sell trade with a smaller protective stop above
  the entry and larger take profit in the direction
  of the trend.

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Types of Risk Reward Ratio

• The type of risk-reward ratio that traders should
  use depends on the type of trader you are and the
  market requirements.
• It would be ideal if you could ever find trades
  that had high rewards and low risk, but what you
  might find in actuality could be very different.

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• Its frowned on to have a risk that is larger than
  the reward, but if the market is volatile, it
  might make sense.
• The point of having a stop loss is not only to
  protect capital but also to stop your trade once
  it no longer makes any sense.
• Sometimes the point where the trade stops making
  some sense is much farther from the opening
  market price than safe exit.

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• When it comes down to it, it is up to you as a
  trader to figure out what type of risk-reward
  ratio you want to use.
• You should try to avoid having your risk be
  bigger than your reward, particularly if you are
  a beginner, but no particular ratio works for all
  traders.
• The important thing is that you use a ratio that
  makes sense for your trading style and market
  conditions.

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Thank You