The Truth About Risk Reward & Why You Should Use A Wider Stop Loss

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Disclaimer:
Trading is extremely risky so never risk what you cannot afford to lose. Our guarantee is based on practicing our concepts on a demo account, not with real money. The information provided by Psych FX never constitutes financial advice and is for educational purposes only. Do your due diligence.

[smeshnoymatvey]

Double your stop loss and cut Half of your position size. Your risk remains exactly same but probability of hitting SL might decrease by 10 times

[apottsfx]

I’m glad I listen to this. I was starting to get sucked into the tight s/l world. This pulled me back. Thank you!

[BW-rfjn]

Loves this, will give some great value to a lot of struggling traders

[paulbrown]

It's all about the stop loss. I think half the battle is working out the best place to put the stoploss. There are many variables. And also, there is a difference between the initial conditions that determine the initial SL, and later on into the trade actual conditions should cause you to re-evaluate your SL.

[BrightKhosa]

When trading facts (not probabilities), your stop is placed at an area that invalidates your set-up. Your trading strategy determines where you put your stops. If I trade OB on the 1min chart, then my stops are below the OB giving a tight stop it would not make sense to have a wider stop because as soon as price goes below my OB my set-up is invalid.

[tamasszoke]

Better content than any trending forex guru's BS... like it very much. Thanks Sam

[CGTraderYT]

This concept is changing my psychology for the better and I believe will lead me to success 8 years into this madness lol

[FreddieM]

The biggest thing is the difference in psychology / emotions / mind set between taking high RR's vs low RR's.

High RR means your trading confidence isn't going to be balanced and it is going to encourage FOMO hugely imo. If trying to target 1:10 RR's the level of FOMO is going to be higher than taking 1:1 RR's, would you agree?

Also the lower confidence which naturally comes with trading 1:10 RR's means that the risk per trade will be less imo. This means that for a 1:10 trade I may risk 0.3%, but for a 1:1 trade I'm happy risking 1%. This means I have to win 3 consecutive 1:1 trades for every 1:10 trade I win so it's not as glamorous as it seems.

Add to that the stress will be higher trading 1:10's which isn't good for performance.

Also 1:10 trades require much more discipline as you have to be more precise, you have to meet more entry criteria. In other words your entry criteria has to be much stricter than a 1:1 trade, combine that with low confidence leads to trading smaller lot sizes than usual as well which ultimately means your brain is tricked into thinking that you can stray from your strategy a little and maybe get more FOMO as a result. Also it's very easy to get 3 consecutive losses trading 1:10's which can be really damaging psychologically and ultimately lead to a revenge trade which can simply be a trade which strays from your strategy very slightly. Losses add up quickly.

Finding 1:10's is much more of a waiting game, best way to trade high RR's is to:
1. learn about those specific setups which allow for them,
2. Not for them to be your primary method for taking money from the market and
3. Do not try so hard to look for them but allow them to appear to you gracefully *


*Point 3 requires further explanation though as finding high RR setups takes a lot of focus, so it's a balance of conscious effort you apply to finding them - you need to look fairly hard but not too hard and obsessively that your ego get's in the way with an unwarranted directional bias - this fear of not getting that high RR is going to make your brain search rampantly like a squirrel trying to find his nuts.

[martin.trading]

I can totally agree with you. I always say to my community, that the tight stop is a self sabotage. Great video 👍🏼

[abdihakimereg]

Not only tight stoploss is trade is low probability setup, but also high commision, because low size increases as SL distance decreases!

[PocketingPips]

haha well said Sam, people want to take 1:10 RR trades but cant even hold that entire trade without getting emotional and wanting to take their money out at a 1:1RR lol it's so sad... then again everyone wants to be pertained as a guru holding these long ass trades like the markets wont take it all away on one single 1hr candle after holding for a few hours

[michaelannor]

i really love this, you are soo real with this analysis, good content

[paulbrown]

Problem is, if you have a wider stop ... and you get into a losing streak .. it will take you longer to get out.

[yurayurick]

Thank you, good video all is clear and understanding. And very big advice that all must be simple and consequentially.
Good luck and take care😉👍

[deegaming]

What do you think of negative R:R trades? Like with a -2:1, you're handed a 66.66% win rate on a silver platter. All you have to do is increase your win rate by at least 8% to be consistently profitable. I did countless simulations at this point that prove that if you have at least a 75% win rate with a -2:1, then you're consistently profitable. I think you can achieve that +8% by following trending markets on pullbacks. I'm not sure yet.

[vivosereni]

I have tried risk reward ratio of 3:1 works best Not being hit regularly.

[Andrew-hxlm]

I agree highly Sam! They only share massive R:R coz it looks glamorous, but what goes on behind the scene such as a lot of losses, that will screw people's mind. I just play it safe and have a wider SL, but if i feel going to higher R:R i just drop down to lower TF ie, 1 to 5 min tf.

[cjwatson]

Stick to lower rr if you dont know how to refine

[davebrockman]

Nice stuff Sam. Makes sense. I have a request. Is it possible to make a series of vids on exactly how you would go about passing a standard prop firm funding challenge using your approach? (Ie trade plan, risk reward profile, contingencies etc). You would pull in alot of loyal followers (with challenge pass funded money in their accounts=more business for you.. ;) ). Win, win.

I have years of fx exposure, but no 10% in a month challenge consistency. Also covid has left me without job. So the challenge route is where my focus is.

I'm sure many others are similarly positioned.

Can you help? Thanks again.

[truthseekerv]

I use no hard stop loss. When I started doing that, I became profitable.