How to Make Profit in Forex?
Stop Loss and Take Profit
Stop loss is the amount of money which you are willing to lose per trade. Take profit is the amount of money which you are willing to receive a profit. In general with forex trading, stop loss & take profit get added to your trades in terms of pips.
Profit Loss Example in Forex:
In forex how much you will make or lose that depends on, how much pip you have earned or lost.
Risk Reward Ratio:
Risk reward ratio is the ratio of taking profit and stoploss. How much you are risking and how much you are earning for that risk. Risk/Reward ratio is the most important factor in trading. Before placing a trade you need to decide whether taking a trade will be worthy or not. Your reward should be always greater than your risk.
How Winning rate matters with Risk Reward Ratio:
Your trading account long-term growth highly depends on risk-reward ratios. No can achieve 100% winning rate constantly. Thus if you have 50% winning rate, i.e you win 5 out of 10. Then with 1:2 Risk Reward ratio, you will still make money.
With 1:2 risk reward ratio you can reach to break even point even with 33% win rate. Following table shows how risk-reward ratio is associated with break-even point.
Breakeven Point is the area, where you will neither make the profit nor make the loss. Zero point.
Risk Reward Ratio
Minimum Percentage For Breakeven
With the table, you can see higher the risk-reward ratio, the lower winning rate required to reach breakeven. That is the benefit of high quality trading.
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