Risk Reward Ratio
When people first start trading the Forex markets they are inundated with information from self proclaimed trading gurus. If you have been around Forex4Noobs for a while you probably know I believe 90% of these trading gurus are failed traders and 99% of what they is usless. Theyll tell you whatever sounds good so they can get into your pockets. One of the most consistently told lies is that your stops should always be half of your take profit. Whenever I hear this I have to laugh, it is just so completley ridiculous, if you actually think about it for a moment it makes little sense. If you are planning to lose 50% of your trades your then yes it makes sense and yes your stop loss should be 1/2 your take profit. I don’t know about you but I certainly do not plan to lost 50% of my trades I plane to win 80% and statistically I do.Look at a pair like GBP/JPY which moves 280 pips per day on average. Who in their right mind would hold a 35 pip stop on this pair? I know that routinely on my trades GBP/JPY moves 40 or more pips against me before going in my direction. If I had my stop loss at 35 pips I would lose a lot more of my trades. In fact had I listened to these trading gurus who say your stop must be half your take profit I would probably not be a trader today. So if that little lie is planted somewhere in your head get rid of it now because it is not going to help you.
