When A High Risk Reward Makes Sense

Here is a real example of where trying for a lot of pips relative to the number of pips risked makes sense.

the TRADEFINDER GBPUSD pair view for Tuesday August 27, 2019 was bullish.

  • The strategy was to wait for the London opening (07:00BST) and then seek out a buy entry
  • At 07:00BST GBPUSD was at 1.2218
  • The overnight (22:00 to 07:00) low was 1.2209
  • The prior day’s (Monday) low was 1.2208

Getting in (buy entry) at 07:00BST made sense because a stop below the prior day’s (Monday) low would be a meaningful stop and a good place to get out of the buy trade because the existing pattern of lower highs on the daily chart would be broken if Monday’s low was taken out on Tuesday.

The stop loss could be placed as close at 1.2207 (one pip below Monday’s low) which would be 12 pips (Buy entry 1.2219 – stop loss 1.2207). However, it makes sense to give the stop loss a bit of breathing room; 1.2204 for example which is 15 pips.
Turning to profit target

in this instance a 5 to 1 risk reward would put the take profit exactly at the prior Friday’s high (1.2219+75 =1.2294)  
A better risk reward would be 4 to 1 (1.2219+60 = 1.2279) because if price gets even close to the high of the last couple of days the profit target will get triggered.
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