Hello, my friend, and welcome to this video on FOREX Trading Classes. Forex trading schools in the US and other countries rarely teach beginners how to plot your risk and reward ratios on your forex trading training software or in professional forex trading courses. In this post, we will talk about how to plot your risk/reward targets on your training software charts before you enter a trade.
I hope you enjoy it!
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FOREX Trading Classes – Video
Hey friends, Barry Burns here with Top Dog Trading, and today I’m going to give you a mini Forex trading class on how to use risk-reward ratios and plot them on your chart for better decision-making and exit mapping. We’ll use the Fibonacci extension tool for this purpose. I’m using NinjaTrader here, but most trading platforms have this tool, so check your platform’s support documents or instructional videos if needed.
Let’s say our setup involves the market coming down, retesting a low, and we’re looking to buy. I’m not going into the buy strategy here; this is about mapping reward levels on your chart, regardless of your entry triggers and stops.
Here’s how we do it:
- Place your protective stop below the bar and your entry just above it.
- Use the Fibonacci extension tool to plot from the low to the high of the setup bar.
- Adjust the Fibonacci levels to show 100% increments (0, 100, 200, 300, etc.).
For example, if our entry is here and the stop is below the bar, our first target (100%) would be here, giving us a 1:1 risk-reward ratio. Not ideal, as we prefer a bigger reward. At the next level (200-300%), it’s closer to a 1:3 ratio, which is better. Always compare these levels to previous swing highs and lows to identify potential resistance.
These levels are not resistance points themselves; they simply show the risk-reward ratios. Before entering a trade, check if these levels align with actual resistance points and consider the market’s momentum. Strong buying or high volume can push the market through resistance levels.
Plot these ratios on your charts, especially on daily charts, as you have more time to analyze. Evaluate if the chart structure and any indicators suggest a good risk-reward ratio. Timing your entries is crucial. Ensure your entry is at a final cycle low for better outcomes.
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