HALAMAN SELANJUTNYA:
Forex Trading Course Lesson 3 - Risk/RewardOne of the most important subjects you will learn in your Forex Trading course is the risk/reward ratio aspect. Whilst trading the Forex requires in-depth chart analysis, it also requires an insight into where the candles you are about to trade actually are in relation to your targets. That is, your trade will be dependent on you identifying successful entry and exit points. Without identifying a risk/reward ratio you may find yourself in losing situation simply because of a minor oversight. This is why this aspect is so crucial throughout your Forex training.
In terms of explaining the risk/reward aspect in this Forex Trading Course lesson article for beginners to the Forex we will use the following example. In you daily Forex charts, the dollar closed at $1.1500 against another currency (for the sake of this example it is not important what currency pair we are referencing). Both trader A and trader B see this closing price fit for investment. They both place their stop loss at $1.1480, meaning that their risk is 20 pips. However, the target is £1.1540 meaning that the reward is 40 pips; double that of the risk. The difference is that trader A buys at the closing level of $1.1500 while trader B decides to wait until the price falls lower so that his risk decreases slightly. The next day, market opens at a lower price of $1.1490. Trader A therefore starts the day of with a loss of 10 pips while Trader B decides to purchase at this level creating a more favourable risk/reward ratio. Trader B's risk is now only 10 pips (stop loss stays at the same level) while his reward is 50 pips as the target stays the same.
Any Forex trading course will teach you to only place your trades where your reward is higher than your risk. How much is completely up to you but if you are new to Forex trading a good ratio to consider would be 2:1 i.e. reward is double that of the risk.
Taking the above two examples which Forex trader is the better trader? The answer is - neither. They are both as good as each other. Why? Simply because they both followed the rules. In this instance Trader A followed the 2:1 risk/reward ration rule whilst Trader B was looking for a better reward. If the market opened higher on the next trading day Trader A would probably reach his target a lot quicker whilst Trader B would delete the Forex chart and look for a better trading opportunity elsewhere.
As your Forex education continues, you should get familiar with the risk/reward aspect and apply it to your trading in the way that will deliver profits. Do not risk your investment by bending the rule because you haven't placed a trade for a while or because you have made a profit by accident when you didn't follow the rule in a previous trade. Forex trading is a game of probability so your competence to read the market and apply the rules you have been taught in your Forex Trading Course will be the difference between making profits or suffering from loses.