Podcast:

#204: How Important Are High Reward:Risk Trades?

In this video:

00:25 – Should you aim for lots of small gains or target the homeruns?

01:05 – How do I get an 80% win rate?

01:46 – The solution is to trade higher time frame charts

02:28 – Place you stop loss for a reason

03:21 – Forget about making pips

05:00 – This shows how very important high reward:risk trades are to your trading success

06:12 – Black Friday 2016 sale

How important is it to look for high reward risk trades as a Forex trader and how does that impact your overall profit? Let's talk about that and more right now.

Hi Forex traders, Andrew Mitchem here, the owner of the Forex Trading Coach. Today is video and podcast number 204.

Should you aim for lots of small gains or target the homeruns?

And, I want to talk about a really important subject. I've had an email come through here from Robert over in the US and Robert said to me, “Andrew look, I keep getting told to go for small incremental gains per day instead of hitting the home runs.” I can tell Robert's from the US because he mentioned home runs and he said, “I apologize for not using cricket terminology.”

He said to me, “Look, I keep doing this and the problem is that where I put my stop loss, it doesn't allow me a favorable reward to risk, so therefore I'm making lots of small gains and getting a few losing trades and of course the losing trades out do all the gains you made.”

How do I get an 80% win rate?

It's quite a common problem. I get people who say to me, they say, “Andrew, how can I get an 80 percent win rate, a strike rate people like to call it, within my trading?” Well, why do you want to achieve an 80 or 90 percent win rate?

Yes, on paper it sounds fantastic to get all these winning trades, but the reality is, if you have a system like that, in most cases you're going to find that if you have that one or two losing trades, especially if you get them back to back, that it wipes out all your gains that you just made and Robert was finding exactly the same problem from the advice that he was given. He said to me, “Hey Andrew, look can you give me some new advice, I suppose, or what's your take on this? How do I overcome the problem?”

The solution is to trade higher time frame charts

To me the answer is generally to get onto the slightly long timeframe charts. I find that generally the higher the timeframe chart, the higher the reward to risk I can get off of those charts and off of those trades. There are several reasons. Spread really doesn't pay much of a, it plays very little importance on a longer timeframe chart. Of course, if you're taking trades all the time on five or 15 minute timeframe charts, spread can soon eat into your profits but if you were taking trades you know, like maybe one or two trades a day on a longer timeframe chart, spread really isn't that sort of significant a factor really.

Place you stop loss for a reason

If you have a longer timeframe chart, you can generally place your stop loss for a safety level, at where it should be for a reason, not just because it's X number of pips away. On most cases that is a very, very bad way of trading because if you pick 50 pips, as an example, 50 pips on the euro/US is completely different to 50 pips on the euro/yen or 50 pips on the euro/franc even. You get pairs that move a lot and you get pairs that move a little bit. Picking the same pip stop loss is not a great way of trading and of course different timeframes require different levels.

I like to say, let's put your stop loss at a level that if that stop loss gets stop out, you accept you got the trade wrong, the market went against you, whatever the reason but you accept that you lose on that trade.