Risk/Reward

[ownshook]

Mr. Hughes,

One thing all the "good books" spout is the risk/reward ratio....risk 20 pips to gain 40 pips type of deal. Do you follow this? Reason I ask is you mention..."disaster stops" and generally take exits from a trsi cross. Care to enlighten?

[FibMaster]

Most traders are terrible at entry and exit timing. So they may win less than 50% of their trades, lose on the rest. So a positive win-loss ratio is important to them! Also, if their trade goes bad, they cling on to the trade with all their hope, until it hits their stop-loss.

If you have a much better win-loss ratio, you can accept a risk of 40 to gain 20. If you don't wait for your stop to hit, because you are smart enough to know whether a trade is working out or failing, then your actual risk is far smaller than your theoretical risk.