Profit and Loss Ratios in Forex Australia

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Forex Australia

Profit and Loss Ratios in Forex Australia

When you are trading forex Australia you have to consider your profit and loss ratio.  Most new traders assume that this ratio is the number of profitable trades against the number of losing trades.  While this is true to a certain extent this depends on what you class as a good trade.  Good trades can be ones where you have made a profit, but they can also be ones where you have traded according to your plans.  It is important that you know about the different ways that profit and loss ratios can be determined.

What Forex Australia Ratio Should You Have?

When you first look at the profit and loss ratio you should consider what ration you should be targeting.  Are you looking at a 1:1 ratio or a 10:1 ratio?  Ideally you want a ratio where your profitable trades far outweigh the losing trades.  A lot of expert trades state that the most realistic ratio is 2:1 or 3:1.  This is due to the unpredictable nature of the forex market and the fact that there are times when you cannot predict a loss.  These times include moments when the forex market moves unexpectedly.

Monetary Ratios

Most new traders will look at the monetary values of their trades to determine their ratio.  This means that they will place a trade that makes a profit in the profit section and a trade that makes a loss in the loss section.  While this seems logical it may not actually be the best way to determine what you trading profit and loss ratio is.

Many expert traders state that you should not work toward a monetary goal because you cannot determine the exact amounts that you are going to make.  Monetary goals often lead to more stress when trading and increased risks in order to make the target.  If this is the case then why should you use money as the means of determining your profit and loss ratio?

Process Drive Profit and Loss Ratios

The traders who are not working toward a monetary goal will work on process drive goals.  This means that the goals they set for their trading relate to the actual process they use.  These traders will place a trade where they have followed their trading plan in the profit section of their ratio.  If they divert from their plan then they will place this trade in the loss section.

Traders using this kind of ratio need to consider having a different ratio to monetary traders.  The monetary traders can use the 2:1 or 3:1 ratio easily.  However, the process trader needs to be as consistent as possible which means that they need a higher ratio.  The ratio that these traders use should be more along the lines of 10:1.

Which Ratio Should You Use?

The ratio that you use for your overall trading should be related to the trading goals you have set.  If you have set a monetary goal then you should be using the money ratio.  However, if your goals are process driven then you should be using the ratio that looks at the process of the trades.

 

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