What is the most reliable forex indicator?

How can I possibly say that when I don’t even know your strategy? Because you’ve given me some key information.

With a risk/reward ratio of 3:1 coupled with an average win of $35 and lose of $28, it’s clear your strategy is no good.

Let’s think about what you’re saying with a risk/reward of 3:1 — you’re telling me that every time you put on a trade your target profit is 3x the distance of your stop lose.

So in a perfect world, if every trade either went to your stop lose or to your target profit, your average win would be 3x your average lose.

In reality, your average win is only 1.25x your average lose.

I also know, given this information, that your win rate cannot be larger than 44.44% because at that win rate you would make $0.

This actually isn’t a big deal. Losing more often than you win is not a problem as long as your risk/reward ratio compensates for it. Yours does.

So where are you going wrong?

It’s hard to say without knowing more, but here are some thoughts.

Your stop lose could be unreasonable. Risking 1 pip to make 3 pips is a great risk reward, but the likelihood of you being stopped out is high.

This is an extreme example, but you get my point. If you aren’t giving your trades room to “breathe” you’re putting yourself in a tough situation from the get go.

Maybe you’re moving your stop lose too soon.

I’ve seen a lot of traders move their stop loses to break even or tighten them a fair amount once their trade gets slightly into profit.

This is selling yourself short and I do not recommend it. If you start with a 3:1 risk/reward, commit to it. Let your trade go to your stop lose or your target, but nothing in between.

You’re cutting your wins far too early. This is a very likely scenario given your average win is only 1.25x your average lose even with a 3:1 risk/reward.

There are a lot of reasons people cut their winners short, but generally it’s because they’re trading scared and don’t enjoy seeing unrealized gains disappear.

My advice would be to put on your next 10 trades with your stop and target profit in place as you normally do. That means a risk reward of 3:1.

Then, do not touch your trades.

Don’t take profits early; don’t move your stop losses. Let the trades close out with either the stop lose or the target profit. I don’t care how long it takes. See if this improves your results.

The only caveat here is if you’re making the mistake I mentioned in #1 above. If that’s the case, you need to completely rethink your strategy.

I’m happy to help if you have questions or can provide more information about how you’re approaching your trades.

The most accurate indicator and the most useful is the ATR (Average True Range) This technical analysis indicator measures market volatility. When working out your position size for the trade, the ATR number will be put into the equation to work out how many lots you will buy for the trade. The ATR volatility number will vary depending on what period of time you are measuring, this comes back to system design and what the most successful time frame that suits your personal circumstances.

When I design automated systems for Raging Bull FX, the ATR is a fundamental input helping to create systems that produce a win ratio above 95%. I cannot imagine what I would do without it.

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