My Case Study Of How Risk Reward Works in Forex – Video Proof

I have mentioned risk reward time and time again in how it is crucial to making money in Forex yet so many people keep doing the same thing over and over, they keep risking more than what they should and thus over time there account gets smaller and smaller.

If you are doing this then you are not alone, in fact if you do this you are in the majority pool and not the minority pool. So let’s see how we can fix that..

Understanding Numbers..

First off, let me first say one thing. In Forex the initial probability is 50 / 50 if one does not look at the charts and randomly enters. I think everyone can agree there, no matter how much or how little one knows  in this business price has to move either up or down 50% of the time, in a way like a coin toss.. What changes these odds is by looking at the charts and evaluating movements. ( PA in a way )

Elements such as trend increase that probability as well by around 10% and then elements such as understanding strong resistance or support increase it again by around 15% again.. This all round makes a trader have a good 75% success ratio. My secret formula of using the weekly charts properly increases your probability as well. Weekly understanding is a whole other topic, because it is so big, so stay tuned there, I will get to that topic soon.

By assessing these elements one can see how one can achieve a 80% success rate..

However there is no rewards for how good you are in this business, in reality it is a profit business so only profits should matter in the end.

Time to leave ego at the door and except that one..

Meet Joe..

Now let’s take a look at the average trader, meet average Joe, he places a trade, puts a stop loss at 100 pips and then later comes back and takes profit at 20 pips.. Well done Joe, he does that 5 times in a row and then oh no, the market moves against him.. He has two choices, he runs and hides behind the sofa or he extends his stop loss and uses equity to protect him or he takes it like the man Joe is and takes a 100 pip loss..

Okay so what is wrong with this view or picture, well Joe did 5 trades each 20 pip profit, but then when the market changed he lost the whole lot on that one.

Breakdown below:

  • 20
  • 20
  • 20
  • 20
  • 20
  • – 100

– Overall zero profit, in fact a loss if one counts spread.

This is so common, that is why many call him break even Joe. Now let me take it one step further, say Joe had two losses which is 200 pip loss and four wins, he would be doing what? Losing money. This is so common as well.

Now, what if Joe took his knowledge and left ego at the door and just looked for 2 to 1 risk reward or more trades.. Hard to do, I know, this is more like what Joe’s account would look like if he can handle the loss runs doing this. He would win about 60% to 65% of all trades, I know that sounds lower but actually that is around the figure of the highest earners in Forex or Stock trading.

So now break even Joe has a plan, he marks his risk on the chart and enters focused on risk first, he knows now that if he loses half his trades in a bad week that he still makes profit, that is his edge he uses to keep cool, even scale-balance-with-risk-rewardthough deep inside he is still sweating on each loss, this is the hardest lesson to learn in all forms of trading but now Joe is ready to take a stand.

Now let’s say Joe at a modest rate is not the best at this, he is average at how he trades and he knows this. No one can be right 100% of the time and now average Joe is becoming less average because he knows this simple bit of math, in fact he is becoming a more successful trader just by understanding this. This is what is often referred to as tipping the scales in your favor, knowledge plus math.

He knows now that if every good trade he sees and he trades if half goes to his target or to at least break even he is making money, maths does not lie and he knows this. He even knows that he should get winning streaks and losing streaks, but that math average is in his favor either way.

This is how it would look like in a nutshell: ( or something similar )

  • 50 Loss
  • 100 Win
  • 50 Loss
  • 100 Win
  • 50 Loss
  • 50 Loss
  • 150 Win

– Profit of 150 pips total, with 4 losses and 3 wins.. That is profit, even with more losses than wins.

… And so forth, I think you get my point, see the aspect above where two losses happen in a row, this is where it divides the trader into a real trader, can you as a person except that double loss in a row..? And if so, then congratulations, because that is key to your survival here..

Now, What Happens If Joe Knows Price Action..? Well that is where everything changes, he not only can except losses but also is now trading the highest probability as well. It is like maths on your side, plus candle and technical knowledge. Well done Joe. Everyone should give him a round of applause.

Video Case Study

Okay so, enough talk yeah, it is time for me to put my money where my mouth is so to speak, in the next couple of weeks I will do just that, I will do a case study of at least 20 trades, no funny business using the at least 2 to 1 risk reward money management system, sometimes 3 to 1.

In order to stay tuned to this important case study results, add your name and email below and also bookmark this page.

About Timon Weller

Timon Weller is the professional Writer and Trader behind the blog Forex Reviews. Timon Weller is also a professional Teacher of Price Action Trading and creator of the popular Training Series teaching people how to trade Price Action effectively called The Engulfing Trader. For other Forex Training available here at Forex Reviews click here.

For more on Timon Weller Click Here. To Learn more about How to Trade the Market and get updates Click Here.


  1. I will also include a screenshot proof to show the 20 plus trades in a row to show proof as well how it works in action. I hope with this proof that one can change to be more focused on risk and less focused on reward and let maths and probability make you money..

  2. Forex Lion says:

    very good and easy explanation, thanks a lot!

  3. I think the lot size should also feature in your MM. There are times when traders overtrade by using a large lot in an attempt to make a large profit in one go. Sometimes it is easier to accept a loss when the lot size is small. Instead of trading 1 standrad lot on one go, it may be better to trade 10 microlots, increasing the probability of success.
    Thank you for sharing your thoughts and ideas.

    • Paul: you are SO right. A prudent method of calculating position size would be to calculate it based on number of pips/points of potential stop loss. If you see 20 pips of stop, what does that represent in terms of currency value? 20pips of stop for the EurUsd in USDollars is $20 if using mini lots (or $200 if using standards). That amount – $20 for example – should be 1-2% of one’s trading capital. So if one has a $1000 balance, the maximum position size at 2% should be 1 mini lot. If wanting to trade only 1% of one account, then one can’t take that trade because the stop loss would over-leverage the risk.

      Thanks for bringing that up!

    • I agree as well Paul. I have a post related to this topic on setting position sizing to risk size here –
      * I recommend under 2% risk ( adjusted by position sizing ) of account size per trade for most traders.

  4. Thanks Tim. Another good video.

  5. very good and easy explanation,

  6. good video/info Tim, ever thought about starting a signal service 🙂

  7. Very sound advice and demonstration. I really got that. Thank you Timon.

  8. Petr Kacer Kostka says:

    That’s good you share your stuff with people Timon, thanks for that mate! Every your single video I’ve seen I found something new to me or reminding old details of it. Greatly appreciated, please keep it on, well done, cheers!

  9. Hi Tim,
    Great Video and great tips.

  10. Hi Timon
    Have been using Forex Tester 2 ( worth every last penny ) thanks to your recommendation and noticed when looking back at my trades i was putting too many 1 to 1 trades on and new i had to start being more careful about which trades i took. I was going to email you and ask you if you had any videos covering this and low and behold when i checked my email coincidentally there was a link to this video and was the exact thing i needed to help me have a better understanding of picking better risk to reward ratio trades. I am definitely going to go search for this pin bar video now as well. Thanks for all these videos and advice they are extremely valuable.

    Happy trading

  11. Hi Tim.
    Thanks again. Great stuff as usual. Thanks a lot for sharing all your knowledge with us.
    Regarding this Video, I have one question about The Bearish Pin Bar followed by the the Bearish Candle and Bullish Pin Bar to be followed by Bullish Candle etc. I kind of know what you meant but I was a little confused about it. Could you please explain that again?
    Thanks again.
    Kind Regards

  12. Vincent foo says:

    Thanks again ,very clear on your explanation on risk reward.

  13. Another great video Timon,
    Its easy to get carried away with winning trades, always looking for that little extra, only as you say suddenly get wiped out. As you emphasise in your video, ALWAYS/ ALWAYS lock in your profits, no matter how small your profit margin. Stick to the rules, and your trading should get easier and less stressful.
    Good trading everyone, again many thanks Timon for your advice

  14. John McAlister says:

    Like your style. Thanks.

  15. great video Timon thank you

  16. Great explanation! thx

  17. Thanks for this video Timon.
    A good reminder to keep me on track with risk reward. I so enjoy your videos straight to the point and easy to understand .
    Cheers Graham

  18. Once again YOU ARE THE BOSS!

  19. Hello, Timon, I really appreciate your help on video you put out. Great tip about money management……

  20. Hi Timon my compliments. A small question:
    In this article you speak that you use the weekly charts but on your weekly forecasts I see always daily and 4hours charts.
    Which is the correct time frames for analysis? Or all ones? Thank you.

    • Thanks Fabrizio.
      Yeah good question, while a trader can focus on daily areas only for evaluating and detecting zone areas, all of those time frames can be used to confirm each other of a trading zone area.
      So as an example: Starting on the weekly and identifying zones, then dropping down to daily to align zone areas with price action tests of these areas in the past, then dropping down even lower ( to 8 hour or 4 hour or lower ) to align and refine these trading areas again. Aligning and refining referring to small adjustments of zone areas based off previous or recent price action tests of these areas in the past.
      Let me know if that clarifies that question, any other questions let me know.

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