Page 295 - DCOM507_STOCK_MARKET_OPERATIONS

Stock Market Operations

Notes

Task Speak to various investors of forex market and prepare an assignment on the
working of forex market.

Case Study Random Entry & Risk Reward in Forex Trading by

Nial Fuller

ver the last two weeks I have conducted a trading experiment in order to prove a
point to anyone out there who might be in doubt of the power of risk reward
Ocombined with price action trading strategies. This article will take you on a
journey into my mind and will
hopefully prove to you that if you
simply implement proper risk
reward and have a willingness to
learn a high probability trading
strategy like price action, you have
all the ingredients to become a
consistently profitable forex
trader. This article will open your
eyes, I suggest you read it, start to
learn about the concepts discussed.
The Experiment
In order to first demonstrate and
prove the power of risk reward,
I decided to randomly enter 20 trades over the last 2 weeks in the EURUSD, GBPUSD, and
AUDUSD on a demo account. No price action setups were used, nor was there any method
or strategy of any kind implemented when entering the market. The parameters were
simply to enter one of the above three currency pairs a total of 20 times within 10 trading
days using a stop loss of 50 pips and a target of 100 pips for each trade, making a risk
reward of 1 to 2 on every setup. I did not “mess” with any trade once it was entered, I
employed pure set and forget forex trading in this experiment; I simply entered and then
let the market do its thing, in order to prove the power of risk reward. (Note, the 20th
trade was at breakeven at the time of this writing and I did not have time to wait for it to
close out, I counted it as a winner, I will update this article if it ends up becoming a loser
when it closes, although this will not change any of the implications or insights of this
article.)
While this experiment was meant to prove the power of risk reward, it was also meant to
prove the power of price action trading strategies combined with risk reward. My results
showed a small profit after entering randomly 20 times with a risk reward of 1 to 2 on
every trade, this after having lost 12 out of 20 trades. This means my winning percentage
for this series of trades was 40%, so I lost on 60% of the trades and won on only 40% as you
can see by the trade history below , this random entry model combined with a 1 to 2 risk
reward still profited about $200, this with no edge applied at all.
Contd...

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