Risk Management

 FX trading the ratio refers to the number of pips we expect to gain in profit on a trade relative to what we are risking in the event of a loss. applying this function is key in our analysis and planning of every trade this makes it easier to control risk easy because our traders will intuitively identify places to exit their trade. 

The key we have found is to find a positive ratio for our in house  scalping to swing  strategy and implementation take time  every time we are considering a position in an asset . 

A positive  2:1 / 3:1 Risk/Reward ratio is our preferred approach and collecting profits as soon as we are 20 to 30 pips in profit while reducing our risk by bring our risk exposure down to break-even.we have also considered hedging our exposure in the options market as a type of insurance against our long term position one of the fundamental and mistakes traders make in which we avoid is risking more on losing positions than the amount gained from a winner. This comes from traders using a negative risk/reward ratio and needing a much higher winning percentage to compensate for their losses.Our traders  are savvy and aware of this and understand that a positive risk reward ratio ultimately will put probability of success in their favour and are also equipped on  how to avoid the number one mistake that Forex Traders Make.
 

Above the graph depicts a sample channel trade on the GBPUSD. Traders looking to trade a Swing would expect to enter the market on a failure of resistance and bearish engulfing at 1.6447 pull back and possible end of a nested fifth wave see www.Timelessfx.blogspot.com. When setting exits on such a trade we have set minimum target stops should always be set outside a level of support or resistance. In this example we have a tight stop loss stops because of the trade line break to the upside and the good retail sales that came out that week for the Pound, jusy above the previous candle highs  at 1.6428. In the event price declines through this level, we would be expecting to gain initially 39 pips. To create a 1:3 Risk/Reward ratio and a extension of this as it heads to the lower target of  1.6313. or better. Now that we know a little about risk reward ratios
in the event that the trade does not go according to plan and reverser to the upside we will have to handle a small loss of 13pips. if we have not already brought out stop loss to breakeven which we eradicate complete exposure Article written by Mr Kasim Ijelu Director of Trading