Before we get into all the juicy details about pin bar entry and exit strategies, we need to discuss a very important subject, the Risk reward ratio. Please do not skip ahead because the pin bar entry and exit strategies we’re going to cover in this lesson won’t make much sense without understanding risk reward ratio. Not only that, but the proper risk reward ratio is critical if you want to succeed as a Forex trader. I truly believe that this is the missing link for many traders who are struggling.
Risk Reward Ratio
So what is a “risk reward ratio”? A risk reward ratio is simply the amount of capital risked to achieve a desired gain. Because it’s a ratio we represent it as follows:
1:2 (in this case the “1” is our risk and the “2” is our reward) An example would be risking $50 for a potential gain of $100. Let’s look at another way to represent the risk reward ratio.
R-Multiple
Don’t worry, it isn’t as scary as it sounds. The R-multiple is simply the ratio converted to a multiple. So in the case of our example above, the 1:2 ratio becomes 2R. Let’s covert a few more before moving on.
1:3 becomes 3R
1:2.5 becomes 2.5R
1:3.52487 becomes 3.52487R …I couldn’t help myself 😉
We’re essentially just placing an “R” after the second number (reward) in the risk reward ratio. Because the risk is always represented as the number one, the reward will always be divisible by itself. It’s just an easier way to represent the risk reward ratio. Not so scary anymore, huh?
The reason I mentioned that the proper risk reward ratio, or R-multiple as we now know it, is critical to your success is because it allows you to have more losers than winners and still come out ahead. How is that possible? By maintaining a 2R minimum per trade, which is how I trade and what I teach in my Forex trading course. If you maintained a 2R average, you could actually lose 65% of your trades and still come out ahead.
Now that we understand R-multiples and the benefit of maintaining a 2R minimum, let’s get into pin bar entry strategies. The rest of this lesson will assume that we have already gone through our confluence checklist and are now ready to place the trade.
More: Pin Bar Entry and Exit Strategies
Justin Bennett is a full-time Forex trader and Owner of Daily Price Action. His Forex trading career began 6 years ago and has followed a path similar to many traders. For the first 3 years he tried nearly every indicator and strategy known to man, but each time the journey ended where it began, frustrated and in search of the next “holy grail” that would bring consistent profits. It wasn’t until he cleared every indicator from his chart that he had his “ah ha” moment. For the past 3 years, Justin has worked to perfect that moment into something that can be easily duplicated by other traders in search of consistent profits.
