Stop Losses and Take Profits: Risk Reward Ratios | Forex

Like stop losses you also need to have limit order (a set price) in the market that when hits permits you to get out of the market for a profit. Take profit orders can be optional but I don't believe stop losses should be options as part of a trading strategy. First of all our take profit should far outweigh the possible loss. So if you have a stop loss at 20pips our potential target level has to be much greater to give us a risk reward ratio of at least 1:2 although I personally trade a higher risk:reward. Reason being of course that we want our potential profits to be greater than the amount at risk on any one trade. If we were to have a risk reward ratio 1:5, we would only need to be right 20% of the time and we would make a profit if we are right 40% of the time. Always look at historic price data to set stops; limit orders should in general be greater than our stop loss.