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Risk Reward Ratio

This is obvious when you think about it, but many, many traders violate the positive risk reward rule.

The concept of this is simple: if you risk 1 you should aim to make at least 2 in return.

If you implement this simple concept into your trading you only have to be correct 50% of the time or maybe even less to still make a comfortable living from your trading.

You should never risk more than you intend to make, so the very worst case scenario is that you are losing 1 on your negative trades and making 1 on your positive trades.

If you determine that your risk is more than your potential rewards, stay out.

Never risk 30 pips to make 10; trading is hard enough without having 3 wins wiped out by 1 loss.

Take away: Always employ a positive Risk to Reward ratio.

Next: Risk Per Trade

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