Most active Forex trading days are
Sundays (opening) and Mondays are days when traders are mostly watching and analyzing the market and predict further price moves.
Fridays are traded approximately till noon, after that all actions slow down and almost freeze before the actual market closing at 5 pm EST.
The Importance of Risk:Reward Ratio
The reward risk ratio measures the distance from your entry to your stop loss and your take profit order and then compares the two distances.
Step 1: Calculating the RRR
Let’s say the distance between your entry and stop loss is 50 points and the distance between the entry and your take profit is 100 points .
The reward risk ratio is 2:1 because 100/50 = 2
Reward Risk Ratio Formula
RRR = (Take Profit – Entry ) / (Entry – Stop loss)
When you know the reward:risk ratio for your trade, you can easily calculate the minimum required winrate (see formula below).
Why is this important? Because if you take trades that have a small RRR you will lose money over the long term, even if you think you find good trades.
Example 1: If you enter a trade with a 1:1 reward:risk ratio, your overall winrate has to be greater than 50% to be a profitable trader:
1 / (1+1) = 0.5 = 50%
Example 2: If you enter a trade with a 2:1 reward:risk ratio, your overall winrate has to be greater than 33% to be a profitable trader:
1 / (2+1) = 0.33 = 33%
Example 3: If you enter a trade with a 3:1 reward:risk ratio, your overall winrate has to be greater than 25% to be a profitable trader:
1 / (3+1) = 0.25 = 25%
Traders who understand this connection can quickly see that you neither need an extremely high winrate nor a large reward:risk ratio to make money as a trader. As long as your reward:risk ratio and your historical winrate match, your trading will provide a positive expectancy.
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