Trading Forex: Doing the Math

Filed under: Learn Forex Trading |

You do not have to be a mathematical genius to trade forex by any means, but it will help if you can do a little math from time to time. There is no greater example of this than in risk-reward scenarios.

 

For example, let’s say that only 50% of your trades are being successful. This statistic may get you down and make you want to give up. Surely anyone can be successful 50% of the time just by flipping a coin  – heads for buy, tails for sell! However, if you have a risk reward scenario of 1:2 on each trade, then you could be doing very well indeed.

 

Over a hundred trades, with a bank of $10,000 and a risk reward scenario of 1:2 and a success rate of 50% on each trade, how profitable do you think this will be? Well I’ll tell you. You would make a profit of $5000, or a 50% rise on your bank! How about a bank of $10,000, a risk reward scenario of 1:2, and only a 35% winning success rate on each trade? You might be surprised to here that even with this low percentage win rate, you would still be making $500, or a 5% rise on your bank. This is the power of risk-reward.

 

You might also need to use some math when calculating your lots. However, you can input the calculations in an excel spreadsheet so that you only need to do this once. Thankfully, most of the calculations in forex can now be done via computers – all you have to do is work out the formulas and learn to use the software! In summary, using math in forex is an advantage, but it is not essential to be a math whiz at any stretch of the imagination.

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