I remember when I used to give private lessons about Forex trading and most of them always started approaching me like: “do you lose trades sometimes?”, “How long is your current winning streak?”.
How many times you need to be right to be a profitable trader? 70%? 80%? Most beginners think that in any case it should be a number that is higher than 50%.
What if I tell you that you can be profitable being right only 30% of times?
Yes, it is possible and we are going to see how.
Usually when new traders open a position, they tend to set their take profit at the same distance of their stop loss.
In this case they are risking exactly the same amount of their potential reward, so we say that the risk-to-reward is 1-to-1, that means that you are risking 1 dollar for every dollar that you can potentially get as a profit.
In this scenario, you need to be right more than 50% of times to be a profitable trader, because when you lose, you lose 1, when you win, you win 1.
Nothing to say about this strategy of money management, it can certainly fit the trading strategy and be profitable in the long run.
What if I tell you that you can be profitable being right only 30% of times?
Yes, it is possible and we are going to see how.
Usually when new traders open a position, they tend to set their take profit at the same distance of their stop loss.
In this case they are risking exactly the same amount of their potential reward, so we say that the risk-to-reward is 1-to-1, that means that you are risking 1 dollar for every dollar that you can potentially get as a profit.
In this scenario, you need to be right more than 50% of times to be a profitable trader, because when you lose, you lose 1, when you win, you win 1.
Nothing to say about this strategy of money management, it can certainly fit the trading strategy and be profitable in the long run.
What if we move our risk to reward to 1:2? This means that your take profit is twice your stop loss. Do we still need to be profitable 50% of times? Let’s see what happens if we are right only 40% of times.
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