Maximize Profits and Minimize Risk–What a JOKE!

We know… We know…. We know… WE KNOW!

We are supposed to minimize our risk and maximize our profits… We have heard it so many times that we are having dreams about it every trading night of the week.

But, has anyone ever told us HOW to do it?

Sure, we have heard “Cut your losses short and let your winners run” –If anyone has had success with that, let me know.

How about the idea of minimizing risk, while maximizing profit? If anyone has figured out that one, I would love to hear about it.

The idea of minimizing risk while maximizing profit is a logical flaw–it doesn’t make sense. Risk and Reward have a direct relationship–not an inverse relationship. If you trade with a 10 pip stop loss and a 20 pip target, and you minimize your risk by reducing your trade size, you are also minimizing your reward.

If you tighten up your stop loss to lessen your risk, but keep your target the same, you are STILL minimizing your reward–this is the one that most people do not understand. Tightening your stop loss so that you can have less risk with the same reward is not sound logic. If you tighten your stop loss, you are directly reducing the amount of times that the trade will hit your target (I don’t care how good your entry is), therefore you are reducing your reward. Again, you cannot minimize your risk without also minimizing your reward–the relationship simply does not work that way.

So, I am begging you: please get the idea out of your mind that you can simultaneously reduce risk and increase reward.

If you do not want to put forth risk, please close down your Forex Account(s) immediately.

I apologize for being harsh, but I believe that one of the most critical steps to being successful in trading is being realistic. If you do not have a realistic approach, it seems unlikely that you could succeed. I know that many, many Forex traders begin this process with completely unrealistic ideas of what can be expected from savvy investing in this market. I just recently wrote a different article about realistic expectations in Forex. In my other article, I wrote about viewing Forex As A Career, and not expecting to be able to make millions of dollars right away.

My goal is not to turn people away from Forex (I don’t think Casey would be happy with me if I did that 😉 ). However, at the same time, I want people to be very realistic about what the Forex market is and what can be expected from it.

I do not have time in this article to get into everything that it is and what should be expected from it, but for now, I will tell you to expect a challenge.

Anyway, let me get back to the core of this article: Maximizing Profits and Minimizing Risk is, in my opinion, impossible. Now, I definitely believe in doing both of those things; however, they cannot co-exist, and that’s what I am getting at.

Trading is about knowing how to control your risk, and when to keep it very small; trading is about how to take advantage of an opportunity to maximize your profits. Both of these things should be done, but they cannot happen at the same time. In those times when you realize you need to tighten your risk up, you will be getting less profit from your winning trades–and that’s okay; and in the times when you want to maximize your profit, you will need to take on some more risk–and that is okay too.

My point is that trading is about developing a system that works for you. One that enables you to keep control of your risk, but also to take advantage of profit potential. There is a big difference between that and “Minimization Losses and Maximizing Profit.”

Next week, I am going to get into what the actual difference is, and what goes into creating a system that enables you to control risk and increase profit potential without defying logic and common sense 🙂

Stay tuned for that article next week!

Nathan

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  • Todd

    Nathan, You obviously haven’t heard of linear or non-linear programming. Perhaps constrained optimization? One can achieve an optimal solution given the amount of risk one is willing to accept. In that respect, one would be “maximizing profit while minimizing risk.”

  • Yougottabekiddin

    LOL. Stanzione hasn’t made a penny from trading. He makes his money hooking in suckers to his spread betting courses. Want to maximise wins while minimising losses? Do the opposite of what all the all in, all out suckers do, day in , day out. i.e. Trade inverse risk to reward, then either inject profits into your next trade or into your stop size to trade a bigger chart. Have an arbitrary time cuttof (say end ot the week) to start the cycle again. When you lose, you lose small, when you win you win big. And that doesn’t mean trying to catch more pips than you risk on a per trade basis, it means winning more % than you lose %

  • Buster-48

    it would be really good if you knew for certain that lots of dedicated traders do make money and its not impossable, but like ive said can you believe what people put in forums or are they just dreaming,how long to become profitable?,if you only knew for certain it would give you the hope to hang in there.

  • Hello Nathan. Thanks for the approval and fair enough that you are agreeing. Maybe it comes across a little unclear as your argument does not take compounding into consideration. When you are risking only small but have multiple positions running at the same time then you can minimise your risk and maximise your reward. If you are working on a strictly 1:1 ratio on a smaller time frame then yes you would have to increase risk to increase reward but with the volatility in the markets taking a 10% risk is suicidal. You may still be trading high probability set ups on smaller time frames but the movement on an intraday level gives a high chance of your stops being hit before price moving in your favour. No matter how good a trader you are, there are so many variables involved at any single moment this movement is totally out of the hands of an individual.

    There can only be 2 reasons why someone would gamble 10%:

    1. He is a gambler and loves the thrill. I say go to Vegas and get a holiday out of it.
    2. Their account size is small and they are looking to build it by scalping and day trading.

    In my account 2% is a significant amount.

    I think, as a slight diversion, trading has to be kept in perspective. The rewards, by those who have mastered it, is not just the monetary gains but more importantly the lifestyle it provides. More time is something we all want. Risking large and spending all day in front of the computer stressing about your huge 10% risk on one trade is not trading. It’s gambling. I can risk 10% on as many as 20 different positions but with experience I know that random statistics has put the odds in m favour.

  • Ben

    Mate, just because you can’t figure out how its done it doesn’t mean other people can’t or aren’t doing it everyday. Finance Theory 101 states that risk and reward have a positive correlation, that is true. But do you want to agree with the textbooks, or do you want to make money?? The super traders out there have defied those laws and trade their plan on the inverse relationship. And screw being realistic. Wimps are realistic. Realistic is where dreams go to die. Figure out how you want to trade and the lifestyle you want and the daily or weekly income you want – then lock yourself away from the world in darkness and no sleep until you figure out how to create that. The screen can give you whatever you want. FIND IT!

    P.S: I’m on your side!

  • NathanTucci

    Who doesn’t believe you cannot win in Forex? Certainly not me…

  • NathanTucci

    Hi Jack, thank you for reading and leaving your thoughts.. You are very right about the greed in human nature, and certainly controlling it is key. Thanks again for reading.

  • NathanTucci

    Hi Zaheer. Thanks for commenting and joining in the fun 😉 .. Surprisingly, I am not going to disagree with you at all. I completely agree with everything you said. And, as a matter of fact, I don’t believe anything you said contradicted what I said in the article. Because my point in the article was not to say that you cannot develop a good risk to reward ratio (though I did use that as an example of what makes trading hard), but my point was that there is no trick to minimizing risk and maximizing reward simultaneously. That does not necessarily mean you can’t have a smaller risk than reward–that, of course, is totally possible, otherwise there would be even less profitable traders than there are now. No, what I am talking about is this idea of Maximizing or Minimizing. To me, this idea is just a nice term that has no real value because it is a mathematically flawed idea. With your trend trading, you are not MAXIMIZING your reward, you are just taking the reward that comes in relationship with your comfortable risk… And why is your reward not MAXIMIZED? Because your risk would have to increase for you to maximize it… So, this time, I don’t really believe we disagree at all. And as far as your thoughts on Scalping vs. Swing Trading–I very much agree! I wrote an article about that too: http://winnersedgetrading.com/the-great-debate/

  • It seems like I have been missing out on all the fun on this article. A nice read Nathan but one that I have to say I totally disagree with. We have had a discussion before about risk to reward when you wrote your article on the Martingale system. You said that you would be happy to risk $1000 to make $60 and I said that was ludicrous. I also said that there was no edge in the Martingale system and you disagreed with me on that. The edge is key to risking small and winning big.

    The main problem people face and fail at miserably when they first get into trading is that they never understand how to read market structure and also never understand natural market movement. And as a result of this no matter what risk to reward ratio you use, they never get anywhere in trading.

    The next mistake people make is that they believe that through either day trading, or even worse still, scalping is the way to make those huge monetary gains but the stats don’t lie. Only 5% who set out to achieve financial freedom through trading succeed. Now Day trading has its place but only if you have a large enough account size to make a 2% risk worth your while. Secondly, because of the huge intraday volatility in the Forex markets, it is very difficult to let your trades run. Your stops never really account for this movement on hourly charts or less. Staring at the screen all day does not help either as emotions make you break all the rules. Stops are moved tighter or worse still further away as price nears them! Amateur mistakes.

    One has to understand that trading is not an overnight success or a get rich scheme as you have rightly mentioned so the question remains, how can one master the risk to reward ration which you claim is a joke. The answer is simple: TREND TRADING USING ONLY THE DAILY AND WEEKLY CHART.

    1. You want to gain maximum results by risking small and winning big and through not over trading. Entirely possible on the daily chart.

    2. Trades are opened and managed only on the daily chart to avoid intraday noise.

    3. A trading account has a decent size to begin with to make the 2% risk worth it.

    4. The most important part is understanding random statistics and mastering the psychology needed with trading. Random statistics states that any moment in the market is random but over the long term markets repeat themselves. Knowing how to Capture these patterns before they happen is where only 5% succeed and the rest fail. The edge, we talked about before, in trading is gained through risking small over the long term but winning big over the long term.

    5. Now here is where money is made in trading and it is through not predicting tops and bottoms of trends which is what most people waste their time doing but by killing the middle of a trend. What I mean by this is strategically opening new positions as the trend develops, in other words, COMPOUNDING. Do not guess the end of a trend until the trend has decided itself to end.

    To prove my point, through using only a 2% risk each time I opened a position, and by compounding when the opportunity arose, I took 6000 pips in the first half of last year shorting the CHF alone over 3 months. And how long did I spend in total getting that, no more than an hour in the market in total.

    So to sum up, I say the risk to reward ratio totally does exist and it totally does work. The key is you have to know what you are doing. Most simply don’t.

  • Buster-48

     sorry I dont understand your coment

  • Manana1

     Run an expectancy analysis on value areas for intraday trading. Should answer all of your questions IMO.

  • Ankodevries

    most important is that youre stop is on the right position on the timeframe you trade, so there is also a los that can be overcome, but gives a opportunitie to win in the next trade. bigger timeframes bigger loses, smaller time frame smaller loses when stop out. so you right about what you said.

  • NathanTucci

    Well, Tim, you basically just wrote my next post for me… You have said what I was going to get into. That you DO want to take the amount of profit you can get and you DO want to keep control of your risk.. The whole point of this article was to point out a technical error in the catchy phrase that you mentioned at the end so that I could get people stirred up (which it looks like I accomplished;) ) … But I agree with you totally and I am going to be saying a lot of what you said in the next article. Especially the fact that the idea of the R/R ratio is almost unhelpful because hardly any trader actually trades that way. Thanks for the comment.

  • Kosentrade

    It seems as though some points may be lost in verbage and counter arguments. Speaking for myself, if I want to minimize my risk, taken to a logical conclusion, I close my platform. And I think that’s the point Nathan was making. This minimization is contrary and inconsistent with maximizing return. On the other hand, if I place a trade I don’t maximize my return. I never trade in such a way as to have a largely detrimental effect on my accout balance. In otter words I hardly ever look at my margin balance because I know my account size and know my open position size to be so small in relation that I margin is hardly an issue. I doing so I hardly “maximize my return” but I do live to trade another day. So therefore under this narrow definition of money management i agree it is difficult to maximize my return while minimizing my risk.

    That being said I dont know any successful traders who trade without management rules. It is not sensible to place trades on stronger levels rather than weaker ones? To initiate a position where the likelihood of the position moving in your favor is higher than the perceived likelihood of it not? To generally trade in a positive reward to risk ratio, while simultaneously knowing that market events can change market movement and you may need to take profits “early and often” or “let a winner run” more than expected.

    I know few traders who trade with a set risk reward ratio. I don’t know if “I risk 10 pips to make 20” is a realistic strategy. Certinially I don’t trade that way. Nor do I set a stop loss and a take profit and wait for one to get hit. My crystal ball isnt that clear. maybe I was targetig a lower fib or the bottom of a descending trendchannel which I entered at the top. Of course in this case I don’t know if it’s going to get there. But I have a reasonable expectation that the trade is goig to go in my favor an I will be able to manage my position. So do I maximize my return. No. Do I minimize my risk? No. but I trade in such a way as to calculate my maximum risk profile and a combination of the distance to a potential target and the respective likleyhoods of a target or stoploss being reach.

    But let’s be honest. That takes a lot more typin to write than simply saying “maximize your profit an minimize your loss” or “buy low and sell high”. And it doesn’t sound as catchy either.

  • NathanTucci

    Hi Dan, I appreciate the time you have taken to make such an in-depth comment on my article. Clearly, this had quite an affect on you 😉

    I suppose, since you invested so much time and effort into your thoughts, I owe you an adequate response; the problem is that I don’t know how to respond to your drawn out metaphor characterizing my mother and I because it simply didn’t make any sense.

    First of all, my mother teaching me how to cross the road and what conventional trading wisdom fails to reveal are about as comparable as a “How to” book on para-sailing and a documentary on polar bears. Due to the grossly miscalculated metaphor you chose to use, I have no choice but limit my response in that area. I am unable to respond to something that has no application, as a scientist would have no reason to respond to interrogations about basket-weaving.

    I do, however, feel compelled to comment on one of your statements. 

    You said, “You could produce arguments & counter arguments endlessly.” 

    You are right that one could argue or counter (depending on the side one is on, of course), but one could argue anything. I could argue endlessly that gravity is not real, but that would not detract from the objective truth that gravity is real. In the same way, you could argue that one could “Minimize risk and maximize reward at the same time”, but it would not change the objective truth that Risk and Reward, in terms of trading, have a direct relationship and therefore, one cannot be decreased while the other is increased.

    Furthermore, I find it ironic that you point out my self-declaration of blowing accounts and admitting my imperfection of a trader, and in the same breath, you suggest that I broadcast myself as a guru. You see, Dan, either I am pointing out things that I have learned from my successes and MAINLY my failures (shown by the fact that in almost every article I share more about my struggles than my achievements) OR I am putting myself out there as the all-knowing trader who is a guru to the gurus–you cannot have it both ways. It seems you have some trouble understanding how relationships between things work, Dan. You don’t seem to understand that one cannot BOTH be an arrogant, pompous, self-proclaimed guru and also a self-proclaimed failure; you don’t seem to understand that the relationship with one’s mother has little resemblance to trading education, and you don’t seem to understand that risk and reward have a direct relationship. Nothing personal, just an observation 😉

    In case you are still not clear, let me help: I am not a guru or a genius or a master-trader. I am someone who has had successes and failures, but overall has a pretty good understanding of Forex trading and a rather good understanding of mathematics. I have definitely blown trading accounts–two actually. As you wisely suggested, I blew accounts by being foolish and not abiding by the rules that I put in place for myself.

    I will tell you, though, that the majority of successful traders have blown accounts somewhere along the line; and one of the most common attributes among millionaires worldwide is that they have lost a million dollars at one point in their lives.

    What’s interesting about the above note is that these are people who have taken hold of the “reward.” They have the reward of millions of dollars, yet they are the same people who have lost millions. It almost suggests that in order to have reward, you have to take on risk 😉

    Well, Dan, I sure hope this helps you understand what I am illustrating a little better. Perhaps you will get a better idea of what I am illustrating in the next article.

    Thanks
    Nathan

  • Manana1

    What is your stop loss size?

  • Dhanjivarasani

     

    Hi Nathan

     

    I find the whole saga as one
    resembling the children story of fully clothed Emperor.

     

    Last Week, your disciple Casey (or
    should I say your Boss) explained to the roomies that you (Nathan) in your
    wisdom has lead him to believe that Forex Traders only need 5 Pip’s a day to be
    very successful traders and becoming very wealthy. Implying that if Nathan
    said so it must be true.

     

    Hummm. That made me look forward
    to seeing who Nathan really is and benefit from his said wisdom. I have had glimpse
    of you since then in the room. However, writing an article on such a complex
    topic is very brave of you.

     

    There is lot that could be said
    on this topic, and many of the readers of your article have apparently tried to
    express their views on the content of your article, but failed to make an
    impact. You could produce arguments & counter arguments endlessly. So I cannot
    pretend to grasps this subject adequately (like you seem to) to really make the
    case either way. As I said it is very complex.

     

    However, let me quote a section
    from your article below:-

     

    “The
    idea of minimizing risk while maximizing profit is a logical flaw–it doesn’t
    make sense. Risk and Reward have a direct relationship–not an inverse
    relationship. If you trade with a 10 pip stop loss and a 20 pip target, and you
    minimize your risk by reducing your trade size, you are also minimizing your
    reward.”

     

    I agree with you that Risk &
    Reward do have a relationship, whether you class it as direct, indirect, or
    inverse or whatever combination. It is absolutely clear in many of the life’s basic
    lessons we have been taught throughout generations and cross all culture, that
    when it come to Risk & Reward, things are not always what it seems.

     

    However, you will probably recall
    your mother teaching you, that when you cross the road, stand well back at the
    kerbside, look left, right and left again, then if safe cross the road whilst
    keep looking left and right and listening for any approaching traffic, to
    safely cross the road. Now as a child you might have benefited from such
    teaching.

     

    Now that you have grown up and
    wiser, you should, go back and argue with your mother with your new found
    knowledge. Namely, to be more successful in crossing the road safely
    repeatedly, and to have more
    rewarding experience in doing so, you 
    should be blind folded and have no regard to any safety habits she
    taught you in order to be more successful. You should not be deprived of the
    frequency of the joy in crossing that road. Tell her that Safety & success
    in crossing the road never go hand in hand at the same time.

     

    In fact try this, have your self
    run over again and again by a juggernaut as that would increase your chances of
    survival & success.

     

    If you have blown your accounts
    several times already as you confess, was that because you were being very
    safety conscious, or was it that you were trying to make more than 5 Pips a day
    in a hurry?    Probably both and then some,
    I assume.

     

    Have you ever heard about
    minimising the potential risk (not only by numerical 20 pips you referred to)
    when you are taking a trade in any place where you fancy, but looking for a
    potential trade set up that could have structural high or low behind which you
    could place your stop which is still with in acceptable risk giving
    consideration to your account size and position size, and where potential move
    is likely to be acceptable reward for the risk taken?

     

    Yes you will not be able to trade
    often with that restriction, and in fact miss many potential trades which with
    hindsight look very appealing, causing regrets. 
    You will likely take longer to reach what you might call success.

     

    But I guarantee that your mother
    will be very pleased with your mature approach in life on this basis, than to
    attempt to run before you are out of your nappy and make fool of your self.

     

    In addition, your disciple (or
    should I say your Boss Casey & his Business) will also benefit from your
    practical wisdom based on time tested rule of avoiding or limiting the risk in
    order to be successful. Rather than flash in the pan as I expect will be the
    case if you continue headlong in your perceived wisdom, and blow yet another
    account.

     

    It is worth taking stock of the
    matters first before proceeding to broadcast your lack of knowledge or grasp of
    main factors and holding yourself out as potential teacher or a Guru to others.
    Yes, some will admire your eloquence, as did the entire Kingdom to their
    Emperor who really was naked, noted by a young lad.

     

    Hope all this makes sense. Only
    an observation. Nothing personal.

     

    Dan V  Email: [email protected]

  • Buster-48

     I must say I agree with Jean Perot,I am begining to think forex is the way to the poor house.So many experts put up what they think are going to be profitable trades but when you look back a few days later they,re all lossers (well mostly) Im begining to think that forex is just gambling,does anyone make consistant profits?I supose they must but ive yet to meet anybody.

  • I completely agree with your probability argument in principle, Nathan… If one has a big enough account and trades in relatively small sizes they would be able to place stops that might never be challenged by the market. The lack of appeal or practicality of such an approach does not detract from what I suspect is objective, scientific data behind your claims. Looking forward to your next article…Curious to see how I’ve been proven wrong! 🙂

  • NathanTucci

    Haha, thanks Helen. I am glad you appreciate them 🙂 .. I will be sure to keep them coming, and I will maintain the idea that the majority of people need to think more than they do already so I will try my best to help them along! Like you said, traders need to be thinkers!

  • NathanTucci

    Sophia, you make a good point, and you have actually gotten into what I am going to be talking about in the follow-up post. I agree that you can minimize losses in the way you mentioned; however, I have to maintain that minimizing risk is technically (and I mean mathematically) an impossibility while maximizing profit potential. As a trader, you know that the potential for a trade to be won is directly related to the amount of room you give it to move before you close it out for a loser. In other words, having a 100 pip stop loss will always make a target of x more likely to be hit than a 50 pip stop loss. This is just a mathematical principle. Using key levels of support and resistance can, of course, increase your probability to hit your target as well, but S and R levels are only relative, while increasing your stop loss, for instance is completely objective; Support or Resistance levels CAN increase your probability of winning a trade, while a larger stop loss MUST increase your probability of winning a trade. Because I can say that statement with mathematical certainty, I feel comfortable saying that even though there is some room for interpretation in the way you take it, the objective truth remains that one cannot minimize risk and maximize profit potential simultaneously… With all that said, I am going to get into your comments in my next article, and I think we may end up agreeing when all is said and done 🙂

  • Thanks for your article, Nathan. You obviously put a lot of thought into the topic, and I am looking forward to your follow-up post. I must say I disagree with your stance, because, as another reader suggested,  ‘minimizing losses, while simultaneously maximizing profits’ is a statement which is open to interpretation. As I have interpreted it, I’ll use the example of applying both concepts. As a swing trader, I look to minimize my relative risk by making an entry for a daily/weekly setup on a 1hr timeframe, after I have received the relevant confirmation. This allows me to place my stop beyond significant resistance/support on the 1hr chart, while targeting a level on the wkly/dly timeframes. Of course my targets will not always get hit without the need for a re-entry, however, there are times, depending on the overall setup, and timing when it is indeed possible to go after those bigger targets without any adjustments…Hence, by my definition…Minimizing risk,  while also maximizing profit potential..’Potential’ being the key word.

  • NathanTucci

    Thanks for the comment, Jackie. There are many many people losing money because that have been given false information by “gurus” or whatever. My goal is to be more realistic and reasonable, and I truly hope that it will help you.

  • NathanTucci

    Yes, Yong, most people do not realize that tightening their stop loss is directly lessening their profit potential. Thanks for reading, hope you catch the next one.

  • NathanTucci

    This article was about provoking the thought that “Minimizing risk and maximizing profit” simultaneously is impossible. The next article will be more concrete ways of what we SHOULD be doing. Unfortunately, setting your mind on something is not always enough; in this case, it is still just as much of an impossibility no matter how much one sets his mind to it.

  • NathanTucci

    Thanks much, Edwin. Unfortunately, there is a lot of thoughtless people out there. Hopefully, I will be able to successfully complete the idea in my next article. 

  • NathanTucci

    Thanks

  • NathanTucci

    Thank you very much, It is a blessing to see people “get it”. I hope to make some more sense of the matter in my next article.

  • NathanTucci

    Hey Phil, I appreciate the comment, but I have to say that I think traders can be successful in many ways. I believe there are probably many traders achieving great success with 20pip and smaller targets, though I know I am not one of them. Yes, cutting your losses short and letting profits run is a great theory, but I have yet to see someone show what that looks like. For instance, what is cutting short? What is letting profits run? How much of your position should run? For how long? It is such a vague statement, that it rooms far too much room for traders to miss the boat.

  • NathanTucci

    Hi Steve, I appreciate you jumping on the bandwagon when one presents itself; however, I would suggest waiting for someone with a little more substance in their comment before you attach yourself to them.

  • NathanTucci

    haha, thank you for the comment. I enjoy people like you. I find it amusing that you call me an idiot, yet you show that you have a severe lack of logic yourself. There is absolutely a difference in the two things I mentioned. I fear that this will be a waste of time for me to explain, since you have already demonstrated that you do not have a great ability to comprehend things that are even slightly beyond the surface level. With that said, I will–in good faith–try to explain this to you. My point of the article was to clue people into the logical flaw in the idea of simultaneously reducing risk and increasing reward. These two things have a direct relationship, not an inverse relationship, so it is impossible to increase one, while decreasing the other. It would be like saying that you are going to get up earlier in the morning and later at the same time. You can do both of those things–get up earlier or get up later–but you cannot do both at the same time; in the same way, you can maximize your profit potential and minimize your risk, but it is an impossibility to do them both at the same time. Mathematics can teach us a lot, this is one of those laws of math; I would suggest that if you have a hard time understanding the basics of math, trading is probably not the best career choice. Anyway, assuming you are beginning to understand this basic logic (which is a lot to assume, I know), I can move on to the next point, which is what I said at the end. What I said at the end was that it is possible to control risk, but also take advantage of profit potential. This statement actually has sound logic. The idea of being able to control your risk throughout your trading (not minimize, but control) and also take advantage of profit potential when a good opportunity presents itself is very possible in trading. Trading this way will require you to increase your risk at times when great profit potential presents itself. Again, it is possible to increase your risk to take advantage of a set-up but still be in CONTROL of your risk. If you cannot see the difference between doing that and “Minimizing risk while maximizing reward” than I don’t believe I have a shot in the world of helping you.. but at least I tried 🙂

  • NathanTucci

    Hey Jeff, thanks for the kind words; I always appreciate your support.

  • NathanTucci

    I will be following up with more on this later this week.

  • NathanTucci

    Well, Yes, Markek, I have blown out a few myself to come to a better understanding of this.

  • NathanTucci

    I am not saying that it cannot be done, only that they cannot be done at the same time. It is a logical flaw to be able to both decrease risk and increase reward at the same time because they have a direct relationship in trading.

  • mk

    I agree totally with you.

  • Adamking1229

    Read the candle’s on the higher time frames, trade off key level’s of S/R, look to enter on the lower time frames. Consider over bought over sold, currency’s strength, market psychology, in general be patient and trade with the whale’s. For most part price will test 2 or 3 times before taking off. watch for stop lose hunting.

    Thanks, adam

  • Jackie W. Cox

     Thank you for the article. It was very helpful to me. I have been having a hard time with my risk reward in my trading. My account looses money each and every week. Hopefully with what I read I will be more realistic.Thank you all very much and God Bless you and everyone at Winners Edge Trading. 

  • Yong

    I agree with your points. If stop loss too tight, it may hit by the market, and reverse to the original profit target.

  • Fon ngando

    This is good but why are you not making concrete suggestions. If someone sets his mind on minimising risks and maximising profits and work on that for sometime he will get a solution.

  • fxgrade

    No one said
    it was going to be easy, but it’s definitely possible. 

  • Manana1

    The difference between retail traders and professional traders is a thorough and statistical expectancy analysis of their trade triggers.

  • Edwin_myers

    Regardless of the thoughtless comments of some, I think the article is thought provoking. Mastering the Forex is more of an emotional issue than anything else once you learn the basics. I am looking forward to the follow-up articles. 

  • Steve

    I agree. People like Nathan that want to pass themselves off as gurus to other traders, sometimes slip up and show their lack of knowledge by making statements such as those in this article. He shows his lack of knowledge about position sizing, atr’s, and where to place your stops.  Its all interrelated and if done properly you will be able to cut losses and let profits run and your wins will be enough to more than cover your losses on your stops.

  • Kristofa

     I love what you have said. It is the truth about the issue.

  • OKENTA KRISTOFA

    Dear Nathan, I love what you have written.
    There is a whole lot of truth in it, Though the minimizing your risk and maximizing your rewards have been around for sometime. Now the truth have been ‘realistically’ been told by you.
    I look forward to your next post, More blessings

  • Jean-Francois Perot

    It’s true it’s difficult to find the proper balance between risk and reward, that’s why I have changed my game plan when it comes to trading Forex. The Forex markets has zero balanced my accounts so many times, that I have actually lost thousands, and all in USD’s so it hurts. Here’s the old me – Before I entered a trade, I would go to Forexfactory.com Sunday night and look at the calendar for the up-coming news items that concern the Euro, because that’s the currency that I trade. I’ll filter out only the news items that are red flagged because those are the high impact items, that will move the markets the most. If I am going to be around for the news flash then I’ll hold my trading until the time comes, however if I am not going to be around then I do not trade. The news items are not the only thing I use to watch, I’ll watch the charts and the various trend indicators to help me determind a good entry and exist, and if I like what I see, I’ll enter the trade, of course taking into account the news flash. But here’s the deal, greed was my downfall each and everytime.
    Eventhough I had the margin to enter the position, I rarely left room for market fluctuations, thus when the trade went against me, I loss big time, of course there were times when the trade paid me off handsomely and I’ll make a few hundreds of dollars. However because of my greed, I lost more than I won and eventually my account would zero balance. Yes, I’ll cry like a baby and blame the Forex markets and throw things, it was always the Forex market fault and not mine. Now instead of having a regular account, I now trade with a micro account, that’s how bad I have fallen. Then I met some professional traders on EToro and actually studied their moves, and I found that some guys do not use stoploss or that their stoploss is so large that it could withstand huge swings in the market. The guy who I was studying apparantly trades very small, he trades on the 1 and 4 hour charts because it helps cancel market nosie, and he trades in the direction of the trend, he also looks at the age of the market trend cycle and never trades cycles that are dying. He’s never greedy he aims for quick in and out. He has also assembled a type of mutal fund of Forex currencies, meaning he has many deals going thus balancing out his risk. Everytime I look he’s always closing some profitable deal. Granted his account grows very slowly, but it grows, and that’s why I think that he’s successful. The new me now trades like this EToro Guru, my trades are so small, I can now take 1000 pip turn against me without me losing my shirt, a 1000 pip loss will only lose me 10% of my balance and I only open one trade at a time and I wait until that trade is profitable before moving on to the next one. Like the EToro Guru, I too only trade the 1 and 4 hour charts, however unlike the Guru I trade just one currency and that’s the Euro. My aim in life is too become a professional EURUSD trader. You, see there’s the answer to Forex trading, like in Real Estate, it’s Location, Location, Location, well in Forex, it’s, “Keep it small, Keep it small, Keep it small.”  Meaning do not let greed and revenge trading wipe your account out. These are the main componets in successful Forex trading. 1. Keep your positions small enough to ride the fluctuations, your position should allow you to take 500 – 1000 pip lost without breaking the bank. A 500 – 1000 pip lost should only wipe out 10% of your balance. The truth is if you trade in the direction of the trend on the 1 or 4 hour charts very rarelly would you lose out, for me personally I have not lost a trade so far with this new apporach. 2. Open only one trade at a time, and keep it open until it makes a profit, which it will if you follow these directions. If you follow the trend going in eventually that correction that moved contrary to your position will reverse itself because the Forex markets moves in cycles and it will revert back to its original trend.
    3. Do not worry about catching the most pips, that’s greedy, be humble and feel content to capture between 10-20 pips, remember quick in and out. The longer you ride the Forex beast the greater the chance of you falling off. (This is in terms of Take Profit), however if you are small enough the better chance one has of staying on the bull (Forex Market) until it rewards you. 4. Don’t revenge trade, if you lose accept it and wait for another trading day. 5. Discipline is key. 6. Don’t buy every EA that you see out there, trust me most are junk, granted there are some good ones out there but I have tested some of them and they are junk. However, if you do buy one make sure it has a money management system built-in and that you can tweak it to suit your trading style and risk tolerance. Most traders tend to leave it on default feeling that’s the best option, when in most cases it’s not. Most EA’s are set to handle standard lots, so resetting the lot size to something you are comfortable in, is the best way to go. Also most people who tell you that their EA is a set and forget do not trust that, it’s your money and you will be well advised to check on your EA from time to time to see if it’s doing its job or sucking you dry. The best way to keep yourself from losing money in the Forex is too actually learn how to trade the Forex and to read the charts, that way you will know whats going on, because the last thing you will need to be is a fool and his money like the old me. 

  • Phil P

    The ONE SIMPLE Concept you failed to mention, is that the MOST Sucessful Forex Traders actually Trade less often THAN MOST TRADERS. ( the majority of traders actually overtrade)  Vince Stanzione, who I greatly respect as a trader, has made a Fortune from Trading, makes it clear  CUT YOUR LOSSES SHORT, LET YOUR WINNERS RUN.  Considering a huge percentage of Traders are DAY Traders – then they won’t be letting their Profits run. In fact they often go for a measely 15-20 pips when the transactions costs may be typically 3-4 pips. This makes the transaction costs 15 -20% of the overall profit on ONE trade!!  This is the ONE SECRET THAT FINISHES TRADERS.  20 pip trades don’t grow a LARGE account over the long run 60-70 -80 pip trades do!!!   And that doesn’t mean trading every 5 minutes, 2-3 times a week aiming for the above at a well placed entry can really make the difference. 

  • Buster-48

    maximising profits and minimising losses is just another way of saying education,no more no less,theres no magic formular.

  • Jdn108

    Nathan is an idiot.  When he says, “My point is that trading is about developing a system that works for
    you. One that enables you to keep control of your risk, but also to take
    advantage of profit potential. There is a big difference between that
    and “Minimization Losses and Maximizing Profit.”  There is no difference.  I fear that this all is leading up to him suggesting a “brand new” “never seen before” system that will solve all our problems regarding minimizing loss and maximizing profit.  If he does I suggest that all clear thinking people run, don’t walk, in the other direction. 

  • Kristina Martinsson

    Can never calculate what other people to do to the system

    Diversify

    Kristina

  • Jeff

    Thanks Nathan…I always appreciate your comments.  Thanks for the help in making me a better trader.
     

  • Roderic Castor

    Waiting for something to work with;   Thanks

  • Marek

    so true – unfortunatly to understand risk/reward, one needs to have an account blowout in order to come to these deductions!

  • Grn_side_up

    Nathan, perhaps it is a matter of definition….minimizing risk and maximizing profits and cut your losses short and let your winners run. To say it can’t be done or not understanding how a trader does this, you may not have a full understanding of what it means and how it’s done.