This is another example to show you with the RR ratio 2:1
Example
A trader goes long - 3 lots of EUR/USD at 1.1950. All stop levels are placed at 1.1935 and plans to take partial profits at 1.1970, 1.1980 and finally 1.1990.
If the trade goes in the intended direction, the profits he will make are as follows:
1st lot: +20 pips from 1.1950 to 1.1970
2nd lot: +30 pips from 1.1950 to 1.1980
3rd lot: +40 pips from 1.1950 to 1.1990
The overall result would be 90 pips.
If the market goes against our trader and gets stopped out, we will have the following results:
-15 pips x 3 (lots) = -45 pips
As already showed you, with such a RR ratio 2:1, we only need a system accuracy of 38% to break even; with a system accuracy of around 50% we will make good money.
We need to make something clear though, when scaling out this way, we are actually going against two basic principles: “the trend is your friend” and “let the profits run and keep your losses short.” When a trade goes in our favor, it means that we probably made a good decision; we probably caught a good trend. By taking partial profits we are limiting our overall gain.
On the example above, our trader could have made 120 pips if he had set all take profit orders at 40 pips, this would be a 2.67:1 RR that will definitely put the odds in his favor.
To be continue....
Example
A trader goes long - 3 lots of EUR/USD at 1.1950. All stop levels are placed at 1.1935 and plans to take partial profits at 1.1970, 1.1980 and finally 1.1990.
If the trade goes in the intended direction, the profits he will make are as follows:
1st lot: +20 pips from 1.1950 to 1.1970
2nd lot: +30 pips from 1.1950 to 1.1980
3rd lot: +40 pips from 1.1950 to 1.1990
The overall result would be 90 pips.
If the market goes against our trader and gets stopped out, we will have the following results:
-15 pips x 3 (lots) = -45 pips
As already showed you, with such a RR ratio 2:1, we only need a system accuracy of 38% to break even; with a system accuracy of around 50% we will make good money.
We need to make something clear though, when scaling out this way, we are actually going against two basic principles: “the trend is your friend” and “let the profits run and keep your losses short.” When a trade goes in our favor, it means that we probably made a good decision; we probably caught a good trend. By taking partial profits we are limiting our overall gain.
On the example above, our trader could have made 120 pips if he had set all take profit orders at 40 pips, this would be a 2.67:1 RR that will definitely put the odds in his favor.
To be continue....
Waiting for more info.
