Help needed:

I’ve been short term trading for the past 3 months but I’m still experiencing overall losses.

The main challenge I’m facing is that my losses are much larger than my wins. I tend to close winning trades with a profit of around 10 pips, while my losses often reach my stop loss at about 20 pips, which erases the gains from just a couple of trades.

Should I aim for larger profits or adjust my stop loss strategy, considering that significant moves can be less frequent? Is my profit/loss ratio simply wrong?

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[Christian HarrisParticipant]

You’re using a negative risk-to-reward strategy, so your potential loss on a trade is greater than the possible gain.

Consistently engaging in trades with a negative risk-to-reward ratio can lead to significant losses over time, even if a relatively high percentage of trades are successful.

This is because the losses on unsuccessful trades can quickly outweigh the gains from successful ones.

Swap to a positive risk-to-reward strategy, where the potential reward exceeds the potential risk. For example, a 2:1 or 3:1 ratio means the potential gain is two or three times the potential loss.

Such strategies are generally preferred as they offer a better balance between risk and reward, and you don’t have to be right every time to make money.

A 20-pip SL is also quite tight when trading FX, so consider expanding that slightly.

Good luck.

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[ABTrading 87]

Sensible guidance here. I would say something similar about the 20 pip stop loss being on the tight side too.

Sam – this ain’t an unusual problem when you start trading so don’t worry too much you can fix it.

 

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[Samwise]

Thank you for your input – this is the information I needed.

I’m changing to a 2:1 positive ratio to see if that helps.

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[Christian HarrisParticipant]

Sorry for any confusion, but my wording wasn’t quite right.

A positive risk-to-reward strategy should be 1:2 or 1:3 etc….

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[John]

Your risk reward/ratio needs looking at. If you changed to one of at least 2:1 you’ll be gaining two pips for every pip you risk. With your existing setup you’re risking 20 pips to potentially gain 10. As a result, you need a very high win rate to be profitable.

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[Samwise]

👍

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