One useful alternative to the Risk-to-Reward Ratio method is for the trader to simply establish a firm risk tolerance which would represent the maximum amount of points he/she is willing to risk for all trades, regardless of their projected reward (price target). So, for example, whether a trade was forecasting a 5 or 10 point target, the risk would remain the same. Messenger Pro utilizes such a strategy because this approach manages what can actually be known in advance, which again is the amount of risk taken. Messenger Pro never intentionally risks more than 1 1/2 points on any trade, in spite of its projected price target.
Another common myth which shows up repeatedly in the advertising of trading systems is the deceptive promise that a trader can risk a very small amount of money to capture a very large gain, and do so repeatedly. An example would be the promise that a trader can risk 1 point and repeatedly profit 10 points. This claim is pure fantasy, with rare exception. The reality is that risk and reward are 2 sides to the same coin. If you seek to capture larger gains, then it is naturally necessary to risk larger amounts of money.
You'll find this principle of balanced risk versus reward is not isolated to trading the markets. It shows up virtually everywhere. For example, throwing a basketball into the hoop when you are two feet away has less risk of failure and is dramatically easier to achieve than shooting from the half court line, where the risk of failure is much higher but so is the points reward.
In summary, it is important to understand that both risk and reward run together. With rare exception, larger gains require larger risk. Traders should establish a personal risk tolerance that is reasonable for their account size and trading objectives (short-term day trading, medium-term and longer-term trading). Avoid getting baited into trades with supposed superior risk/reward ratios. By observing these general guidelines the likelihood of producing consistent, positive results increases significantly.
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