Hey traders… how is it going?
There are two possible things that we need to analyze when testing one system:
- Accuracy of the system
- The risk reward ratio
A lot of traders “try” to focus on the accuracy of the system. I get a bunch of emails asking me about how many times my system is right, etc.
But let me tell you one little secret traders… We have no control over the accuracy of the system, its given data.
As much as we dont like that statement… its true.
So we need to focus in the other aspect of the system, which is the risk reward ratio.
The risk reward ratio refers to the amount of pips your want to get agains the amount of pips you are risking on a trade.
If you are risking 30 pips and trying to get 30 pips, the risk reward ratio is 1:1
If you risk 30 pips but you try to get 60 pips, then the risk reward ratio would be 2:1
Ge the idea?
So, if there are two things that you can focus on, on one of them, you have complete control and on the other one, you are not even close to have any kind of control…
Which one would you focus on?
In the risk reward ratio, obviously (its the one you have complete control over).
Ok, now… let me show you a trade with a risk reward ratio greater than 10:1 (you know what that means right?).
The GBPCAD is trading in a very clear bearish condition… If you look at the long term charts, you’ll that was clearly rejected from an important resistance level.
Since we know its in a bearish condition, now we need to look at the short term charts and look for a possibility to go short.
If you look at the 1H chart, you’ll clearly see downward pressure, which is exactly the kind of pressure that we are looking to take our trade.
Now, let me show you the 15M chart:
So I’m taking this trade… These are the details of the order:
Entry stop: 2.0012
Did you see where the TP is at? Nope, that’s not a typo…
Whats the risk reward ratio of this trade?
What do you think about what I said before: accuracy vs risk reward ratio?
And what about my GBPCAD trade? Are you going to take it?
What other pairs are you trading/monitoring?
Share your thoughts.