Assessing Risk First

An important Forex concept is the risk:reward ratio and many experts advise that you should aim for a value of 1:2. The second one is your percentage of winning trades. Obviously a value of 50% and greater is preferable.

You should note that you can achieve successful trading over the long haul if you manage just a risk:reward of 1 supported by a winning percentage of 50.1%.

Combining these two concepts together constructively can have a huge positive impact on your trading. To demonstrate the importance of these two concepts, you need to realise that the essential difference between Forex novices and experts is that new traders think about how much money they can make while professional traders think about how much money they can lose.

You need to realise quickly that there is big difference between risking 2% and 10% of your total account per trade. Ten trades, risking only 2% of the balance per trade, would lose only 18% of the total account if all were losses. Under the same conditions, 10% risked would result in losses exceeding 66%.

Clearly, the first case provides much more account protection resulting in an improved length of survival. You must appreciate quickly that the most successful Forex traders are first skillful survivors and second big earners.