Risk to Reward
Creating a forex trading plan is one of the most essential parts of being a successful trader. If you go into the market knowing your set rules and risk to reward then you will be much more confident in the entry and exit of your trades. My game plan in this presentation is to teach you how to set multiple positions with a 1:1, 2:1 and 3:1 risk to reward, along with how to effectively trail stop.
1:1 Risk to Reward
Using a 1:1 risk to reward allows the trader to breakeven with a 50% win rate.
An example of a 1:1 position would be a 20 pip SL (stop loss) with a 20 pip TP (take profit)
The 1:1 position is usually my first position of 4 when trading and closes once my first and lowest TP is reached.
This is the one and only position that I do not trail stop.
2:1 Risk to Reward
Using a 2:1 risk to reward allows the trader to breakeven with a 33% win rate.
An example of a 2:1 position would be a 20 pip SL (stop loss) with a 40 pip TP (take profit)
The 2:1 position is usually my second position of 4 when trading and begins trail stopping with SL moved to positive 10 pips in case the position turns against me. From there, I trail stop every 20 pips or so, depending upon the strategy.
3:1 Risk to Reward
Using a 3:1 risk to reward allows the trader to breakeven with a 25% win rate.
An example of a 3:1 position would be a 20 pip SL (stop loss) with a 60 pip TP (take profit)
The 3:1 position is usually my third position of 4 when trading and begins trail stopping with SL moved to positive 20 pips in case the position turns against me. From there, I trail stop every 20 pips or so, depending upon the strategy.
Opening Multiple Positions
The reasoning behind opening multiple positions per trade, is to reach each of the risk to reward scenarios and to maximize and lock my profit to it’s highest potential.
By using a breakeven and trail stop, I ensure that I am gaining maximum pips with solid risk management.
What Is Trail Stopping?
Trail Stopping is an advanced type of stop loss order that reduces the risk of your trade as it progresses. As the trade moves in the trader’s favor, the stop is adjusted to a more favorable rate. Other than my 1:1 first position, I always trail my stops.
Dynamic Trailing Stop
A Dynamic Trailing Stop is the most commonly used. For every 0.1 pip that the trade moves in our favor, the stop is adjusted.
Fixed-Step Trailing Stop
A Fixed-Step Trailing Stop is similar to the dynamic trailing stop, however it bases on a set number of pips. If the trader enters 20 pips, then the stop is moved every 20 pips and must reach that 20 pips to move the original stop.