(assuming identical risk-per-trades three losing and three winning trades will now generate a handsome profit, because youre winning two times more on each winning trade than youre losing on each losing trade. What is the most important factor separating the seasoned traders from the amateurs? While this looks straight forward, it is a bit more complex than that. Traders often aim for unrealistic goals of expecting to make a 20 return on investments. This refers to the ratio between your maximum loss on a trade, and your maximum profit on a trade.
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(Read more What is Leverage? Copyright m All Rights Reserved Forex trading is a high risk investment. Money management Forex refers to a set of rules that help you maximise your profits, minimise your losses and grow your trading account. This refers to a straightforward principle when a trade is losing, close the trade before the losses accumulate, and when a trade is performing good, leave the trade open and have faith in your trade setup. A trader who has made 10 trades risking only 2, under the worst conditions would lose only 17 of his initial investment. Therefore, forex dealers can liquidate their customer positions almost as soon as they trigger a margin call. While its pretty easy to understand the benefits of these techniques, it happens that beginners to Forex trading tend to neglect even basic money management rules and end up blowing their accounts. The 1:2 minimum risk reward ratio is used because for every winning trade, you can recover the losses from the previous losing trade and make a profit as well. Since forex is a spread -based market, the cost of each transaction is the same, regardless of the size of any given trader's position. Loss 10,100, trade Loss 10,000 Trade Loss 9,800 Trade Win 10,000 Trade Win 10,200 Trade Win 10,400 Trade Loss 10,200 Trade Loss 10,000 Trade Win 10,200 From the above table, a trading strategy with a 50 win rate can still offer you a 200 profit. If there are no trading opportunities, I step aside and let the market come to me in the next few days when a high-probability trade setup arises.
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