Video: Risk vs. Reward in Forex

08/26/2011 7:00 am EST

Focus: FOREX

This real trade example shows how a professional currency trader analyzed a potential trade set-up to define the risk/reward, select proper entry and exit points, and carefully place a stop order.

Risk is a fundamental part of trading. Without risk, there is no reward. Many traders believe that the higher the risk, the more potential for reward, but this is just not the case.

In the video below, I discuss how I determine the risk/reward ratio for all of my forex trades and how I use objective levels and technical analysis to determine the entry and exit points and stop-loss placement.

See related: How to Place an Objective Stop Loss

My goal in forex trading is to achieve a 2:1 ratio - essentially double the profit of any risk I am taking with my account. For other traders here at SMB, that ratio is 5:1. Understanding what ratio is best suited for your account size and risk tolerance is something all forex traders need to determine prior to making any trade.

See related: Make Sure Risk/Reward Is on Your Side

This video will explain in more detail a recent trade I had and how I determined the levels mentioned above.

Please use the player controls to view the video:

By Alex Salazar, currency trader, SMB Capital

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