Look at trading risk in terms of Dollar Risk, NOT Pip Risk

One of the reasons I like to learn trading from Bob Iaccino and do some of the same trades that his firm does, is because you LEARN about trading as you trade and there is not just willy-nilly buying and selling in the FX market.

He teaches risk vs. reward. He has experienced and rookie subscribers...but the latter have a gameplan now, as opposed to no plan and just losing all their trading capital in the first two weeks.

He teaches how to deal with losing trades (which are inevitable) and so on. But today was great because we were taught a lesson that was given as a result of a rookie losing money on a trade, and then complaining about it...and I guarantee you he was complaining because he didn't understand money management or risk vs. reward.

Many of the lessons that you learn from these guys can be found in the hundreds of old seminars that are archived (for peanuts.) But, I will try to explain this one:

One of my losing trades from yesterday lost about 8o pips, whereas my only winner made a profit of 40 pips. Dollar-wise I lost out, Bob made money, even though we did the same trades.

Why? Because I forgot that the stop loss for the EUR/GBP trade was only 20 or 30 pips away...so I could have afforded to take a bigger risk AND the stop loss for the EUR/USD trade was about 120 pips so I would have lowered the position size. Bob's firm did a position that was 6 times the size of the EUR/USD trade. Needless to say they cleaned up. One of the things they don't do at this level is tell you position sizes...that's for us to decide.

To recap: The R/R ratio will make the trade with the larger stop have a larger reward… e.g. 20 pips of risk should equal roughly 40 to 60 pips of reward OR 100 pips of risk should equal about 150 to 300 pips of reward.

This was a great lesson and I really learned a lot...There is so much to trading besides just initiating and closing positions...understanding risk/reward is crucial...

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No trades went off today...pretty much every pair was flat as a pancake.