Risk to Reward
Risk to reward is crucial when trading the financial markets. Protecting your capital should be your number one priority. This video will show you how to ensure you are only risking a certain percentage of your capital.
Your account size / 100 = 1% of your capital
1% of your capital / Stop Loss pips = The amount per pip you should be risking.
The next thing we need to be ensuring is that we are taking trades that are a minimum of 1 to 1:2 risk to reward trades.
Example of 1 to 1:2 RR
Pips to stop loss x 1.2 = The number of pips required for a 1 to 1:2 risk to reward.
Example of 1 to 1:5 RR
Pips to stop loss x 1.5 = The number of pips required for a 1 to 1:2 risk to reward.
Ensuring that we always have a minimum of 1 to 1:2 is key anything below this criterion would not meet the AFX strategy and should not be taken, anything higher would increase your chances of success. Again, making sure we are targeting key levels in the market not just numbers that add up to the Risk to Reward you want from the trade.
By consistently hitting the correct Risk to Reward and not cutting trades short, you are able to lose 5 out of 10 trades and still make money.