I'm a bit new to Forex trading, and I'm having trouble coming to terms with a particular theory.
The topic of reward/risk ratio comes up frequently in the discussion of money management. I've read that it should be quite high, 2:1 or even 3:1. I take this to mean that you must cut your losses much quicker than you cut your profits. My implementation of this is setting a higher take profit and a tighter stop loss. If my SL is 100 pips, my TP will be 200 pips. I try to only enter trades where this is feasible based on my analysis of the charts.
However, it is an undeniable fact that increasing the take profit will proportionally increase the changes of being stopped out before your TP is hit. This is the concept that I'm having trouble reconciling. If I shoot for a higher RR ratio, I'll just have fewer profitable trades. They may be larger, but they'll be fewer. Won't this just equal out basically?
Any ideas or thoughts? I feel like I must be missing something here, because I can't seem to find reconciliation here. Thanks in advance!
The topic of reward/risk ratio comes up frequently in the discussion of money management. I've read that it should be quite high, 2:1 or even 3:1. I take this to mean that you must cut your losses much quicker than you cut your profits. My implementation of this is setting a higher take profit and a tighter stop loss. If my SL is 100 pips, my TP will be 200 pips. I try to only enter trades where this is feasible based on my analysis of the charts.
However, it is an undeniable fact that increasing the take profit will proportionally increase the changes of being stopped out before your TP is hit. This is the concept that I'm having trouble reconciling. If I shoot for a higher RR ratio, I'll just have fewer profitable trades. They may be larger, but they'll be fewer. Won't this just equal out basically?
Any ideas or thoughts? I feel like I must be missing something here, because I can't seem to find reconciliation here. Thanks in advance!