This is a guest post I did for DailyForex.Com
Most traders believe that in order to have a great risk reward ratio on their trades, they need to have a tight stop – or at least as tight as possible.
This makes sense of course. If you risk 30 pips to gain 300 pips, your risk reward ratio is better than if you risk 150 pips for the same 300 pips (10:1 vs 2:1). The tighter the stop, the better the risk/reward. Of course, the tighter the stop, the more you get stopped out, the more losers you have, and the more difficult your trading system is to trade without mistakes.
There is a different way, though – a way in which you can have a wide stop-loss and still have an extremely good risk/reward ratio.
About the Author
Sam Eder is a currency trader and author of the Definitive Guide to Developing a Winning Forex Trading System and the Advanced Forex Course for Smart Traders (get free access). He is a co-owner of Forex Signal Provider www.fxrenew.com. If you like Sam’s writing you can subscribe to his newsletter.