SPECIAL OFFER: Save 80% Off Nial Fuller's Pro Trading Course -
Nial Fuller

Professional Trader, Author & Coach

Case Study – Random Entry & Risk Reward in Forex Trading

A Case Study of Random Entry & Risk Reward

buy sellOver the last two weeks I have conducted a trading experiment in order to prove a point to anyone out there who might be in doubt of the power of risk reward combined with price action trading strategies. This article will take you on a journey into my mind and will hopefully prove to you that if you simply implement proper risk reward and have a willingness to learn a high probability trading strategy like price action, you have all the ingredients to become a consistently profitable forex trader. This article will open your eyes, I suggest you read it, start to learn about the concepts discussed.

The experiment:

In order to first demonstrate and prove the power of risk reward, I decided to randomly enter 20 trades over the last 2 weeks in the EURUSD, GBPUSD, and AUDUSD on a demo account. No price action setups were used, nor was there any method or strategy of any kind implemented when entering the market. The parameters were simply to enter one of the above three currency pairs a total of 20 times within 10 trading days using a stop loss of 50 pips and a target of 100 pips for each trade, making a risk reward of 1 to 2 on every setup. I did not “mess” with any trade once it was entered, I employed pure set and forget forex trading in this experiment; I simply entered and then let the market do its thing, in order to prove the power of risk reward. (Note, the 20th trade was at breakeven at the time of this writing and I did not have time to wait for it to close out, I counted it as a winner, I will update this article if it ends up becoming a loser when it closes, although this will not change any of the implications or insights of this article.)

While this experiment was meant to prove the power of risk reward, it was also meant to prove the power of price action trading strategies combined with risk reward. My results showed a small profit after entering randomly 20 times with a risk reward of 1 to 2 on every trade, this after having lost 12 out of 20 trades. This means my winning percentage for this series of trades was 40%, so I lost on 60% of the trades and won on only 40% as you can see by the trade history below , this random entry model combined with a 1 to 2 risk reward still profited about $200, this with no edge applied at all.

What is the lesson to learn here?

While the trade history above certainly proves the true power of risk reward, we have to ask ourselves how much better we could do by applying a true edge in the market, like the edge we get from trading price action setups. When combined with experience and education, price action trading strategies can certainly provide you with trade setups that give you a better than 50% probability in the market, assuming you apply discretion and do not over-trade. So, if we assume we can attain at least a 50% win rate by using simple price action strategies like the ones that I teach, and we use a risk reward of at least 1 to 2 on every trade, over a series of 20 trades where we risk $50 per trade, we would make a profit of $500 ($1000 in winnings – $500 in losses).

So, we know that risk reward strategies work, there is no doubt about that at all; you randomly enter the market and if you make at least 2 times your risk on your winning trades, you will likely breakeven or turn a small profit over a series of trades. When we combine this knowledge of the power of risk to reward with a high-probability edge like price action, what we have is a professional money management and trading strategy, which when combined with the proper education and discretion will make money over a series of at least 20 trades or more.

Professional traders know that their winners have to out-pace their losers to make money, because most professional traders only win about 50% of the time. If you have no edge in the market that can get you to the point of winning at least around 50% of your trades, you are probably going to only breakeven over any series of trades, assuming you still implement a risk reward of at least 1 to 2. Most traders do not implement risk reward properly; they take profits of less than 2 times risk which inherently forces them to have a very high overall winning percentage to make money. By taking a profit of less than 2 times risk, you are basically PURPOSESLY putting the odds against you, because you then will have to win over 50% of your trades to make money, and most trading strategies do not give you an edge that will allow you to consistently win over 50% of your trades.

A high quality price action setup allows you to set and forget your trading while still giving you a higher than 50% chance of winning any given setup. What this means is that with price action and risk reward you have a nearly stress-free way to trade the market; you can wait patiently for obvious price action setups that develop from confluent areas and/or in trending markets, enter a risk reward of 1 to 2, and walk away until the trade is closed. If you actually do this with discipline, by only taking obvious price action setups and rigidly implementing a risk reward of at last 1 to 2, you will become profitable over a series of trades.

The key is to not get discouraged if you hit a few losers or become over-confident if you hit a few winners. What if you lose on the first 8 trades out of 20? Look at the results of my trading experiment above; did you notice that I lost on 9 trades in a row before hitting a series of winners? This is called trading, and sometimes you will hit a string of losers or a string of winners, but you can’t let this influence your forex trading plan, you have to have a longer-term outlook and remind yourself that your edge, combined with risk reward, needs time to play out.

Obtaining the proper training is the key.

The Key To SuccessOther than being able to control your emotions and remaining disciplined enough on a consistent basis to not over-leverage or over-trade and implement proper risk reward on every trade, the biggest variable that can influence your trading success is whether or not you know what your edge is and when you should trade it. This is where proper forex trading education on a high-probability trading strategy like price action comes in. I have been successfully using simple yet effective price action setups to trade the markets now for years, and I teach other traders exactly how I trade in my forex trading course. My course and it’s teachings not only give you a trading strategy, but it shows you when to use the strategy and what the market should look like before you enter.

When you combine my price action setups with a thorough knowledge of risk reward implementation and a mastery of trading plain vanilla price charts, you will begin to think like a professional trader. Pro traders see the market in a completely different way than amateurs do; they do not over complicate anything. First they check the market to see if their trading edge is present; if it is not present then they leave the computer or not look at the charts for a period of time, typically at least 4 hours. If their trading edge is present, they will then move on to the next factor to check; whether or not a risk reward of at least 1 to 2 is logically attainable. If a risk reward of 1 to 2 is attainable then they enter the trade and walk away, that’s it. The reason a professional trader thinks and trades like this is because they don’t get attached to any one trade; they know that each trade is just one out of a series of many that they must take in order to see their edge play out. Amateur traders get caught up on each trade; they react to the emotion of each loser or winner because they simply cannot see the forest for the trees, typically due to a lack of experience and insight.

My trading course and price action trader’s community gives you the insight you need to become a successful discretionary price action trader, the experience is something you must develop on your own from the tools and education that I provide. When you combine the price action and risk reward strategies that I teach with a healthy dose of self-discipline and trading experience, there is virtually nothing that can stand in your way except your own lack of self-control. If you would like to learn more about how I trade the market with price action setups and risk reward scenarios, please check out my price action forex trading course.

Print Friendly, PDF & Email

Nial Fuller

About Nial Fuller

is a Professional Trader, Investor & Author who is considered ‘The Authority’ on Price Action Trading. His blog is read by over 200,000+ followers and he has taught 25,000+ students since 2008. In 2016, Nial won the Million Dollar Trader Competition. Checkout Nial's Professional Trading Course here.
Nial Fuller Professional Trading Course Preferred broker 2020 v1

Leave a Comment

Your email address will not be published. Required fields are marked *



    • Ansuman Bhattacharya

      this approach has ups and downs, you might end up with break even or you might end up with big profits for trades running longer in your direction. Keep a cautious eye on your trades and try to close them with calculated profits to outnumber the losing trades

  2. Kate M

    This is a really really good article. Thank you. I no longer keep checking the charts and fidget over trades, it is quite a freedom! Its something brilliant to finally realize you only need a small bag of medium-large wins each year to succeed at trading. I dont stress if a month goes by with nothing – no trades, no wins , no losses ;) It feels great to be able to wait for the next month and not worry if the setups will be there, because I know they will eventually. They appear every year and that’s all I need! Thanks Nial!

  3. Simon

    Yes, given that the average trader loses and accepting that this strategy may not guarantee a win in the long run, it’s significant that by using an entirely random entry, you get a higher success rate than the average trader. It’s interesting that Richard Dennis trained his turtle traders to enter the market randomly like this in order to make them aware that the important thing is not necessarily how the market behaves but how they react to what the market does (i.e. that losses and let winners run longer the the losses).

  4. chris

    I think that the amount of trades done doesn’t really provide any insight as to random entry with certain risk parameters I’ve done tests exceeding 1000 trades like this and found that money management in itself provides absolutely no edge. Results are skewed as sampled population remains small but as it continues on it finds balance in the seemingly complex randomness eventually returning to breakeven over the long term and then minus the spread its unprofitable. I can say without a shadow of a doubt that IF you are profitable it comes from your entry and exit

    • Nial Fuller

      Chris, thanks for your views. I agree entry and exit are the most important factors… but traders won’t be profitable in the long term without correct money management. a good strategy (entry and exit ), money management and long term consistency are the key ingredients to trading success.

    • gerard

      I agree with Chris I too have tested this senario over a 10 year period. The results were chopy and up and down results around 50% but over big enough timespan the spread kills you. Also somepairs were significantly poor.

      Generally :-( The risk to reward should reflect the type of strategy you are using. A breakout type strategy would have a better risk to reward but lower win percentages. Reversal generally has a better win but less less risk to reward. Also I agree with entry exit with more emphasis on exit. Lots of people talk about entry but with out good exit it will make no big difference. An exmple of this would be conners 2 period RSI. A set stop gives you poor results. ATR is a little better, combined with a moving average it increases significantly, you could try a trail of some sort. The point is the exit is as important to the entry. Static set stoplosses in my opinion are open to whipsawing. But just because I cant get it to work doesnt mean it doesnt.

      Keep in mind I never really like to make HARD rules about the market these are generalisations, I find what maynot have worked in the past given my new found experience knowledge will often work in the future. Its the systems wholistic conbinations that make it a better system.

    • Eric

      Chris, the outcome of flipping 1000 coins will ultimately provide 50% Heads and 50% Tails. The higher the attempts, the less “skewed” the outcome. 1000 trades may move one to the 50% win rate. Combining this with a 2:1 (R;R) provides an Expectancy value of 0.5, which is very good- 50 cents on the dollar. Good/Excellent entries and exits actually enhance the R:R of 2:1, making it achievable. Trust this makes sense. Aiming for breakouts with attendant false breaks may provide higher R:R but also lower win rates. It all balances.

  5. Yash

    OMG, I never thought of that, that’s why you are who you are, and I am who always loves to read your article.

  6. mathman

    It always baffles me that traders think they can compute a risk/reward ratio before a trade. That is impossible.

    The only component that can be computed is how much you are willing to lose on a trade. Even then you could get a gap that will skew that number as well.

    Risk/Reward can only be computed after the trade.

    Far more important than entry are your exits, your position sizing and following your system.

  7. rhio kurniawan

    thank you.. i love this article!! i very agree with this bcoz trading actually need :
    60% psycology , 30 % money management and strategy is just 10% on ur success

  8. Tim

    Hi Nial,

    I’m afraid that you have fallen into one of the traps in statistical thinking that catch out many unwary traders.

    In a market with random entries, setting a 2:1 risk reward (or any other ratio) will result in zero profit, less the cost of trades when tested over a large number of trades. This is because the probability of price hitting the stop is inversly proportional to the distance of the stop from the entry point. Also 20 tests are not neary enough to give your test any sort of statistical validity. At least a few hundred tests would typically be required.

    The fact that you obtained a small profit from this test is purely luck. It could have just as easily ended in a lost.

    What you correctly say is that it is the edge, due to your high probability entry that determines the outcome. It is also this edge that enables you to take advantage of a risk return ratio of 2:1 or whatever.

    Random entry on its own won’t work if you test it over a sufficiently large number of trades. In other words there is no intrinsic edge in how you sets your stops.

    • Bob

      These views are true. Samples are not enough and results could have ended in a loss or breakeven. But the point of this article is to prove that with proper risk reward, even random entry has a chance to win or not loose, whereas without it and consistent good money money management losses are almost guaranteed, which is why most traders struggle and fail.

  9. Dan

    Great article as usual Nial! I am unsure on a part of position sizing: I know I’m meant to only risk around 2-3% of my total capital on any one trade, what happens if I have a string of winners or losers? Do I increase or reduce my position size? Thanks again for your insight!

  10. jojo

    Very helpful article Nial. This lesson gave me a different view on how I should apply my trading strategy, it shows a stress free trading on a professional approach. Thanks for sharing you are a blessing! Cheers!

  11. Linda

    Great article as always Nial,keep up the good work.
    God bless.

  12. leo

    thank you nial i think this is the best lesson on trading forex in general .this wil take out the stress.and this did it for me.i wil take your course you deserve it.


    Dear ‘Professor’ Fuller. You said it all when you said,’My trading course gives you the insight you need to become a successful discretionary price action trader, the experience is something you must develop on your own from the tools and education that I provide. When you combine the price action and risk reward strategies that I teach with a healthy dose of self-discipline and trading experience, there is virtually nothing that can stand in your way except your own lack of self-control.
    This is the PIVOT in trading that every other wheel revolves upon.
    Thank you my ‘prof’.

  14. maviiri godfrey

    thax this good

  15. Ben

    Hi Nial your knowledge and experience sticks out.
    There is one point that needs to be asked when taking it from scientific approach as should be: I think it is safe to say that higher Risk-reward will result lower SR and vice-versa, reducing the RR will increase the SR.
    Have you looked at such optimization? Did you try working your PA strategy on different combinations for example risk-reward of 1:1? or 3:1?
    Is 2:1 is the ratio that you recommend for your PA strategy?

    Thanks again for a great article and the desire to help others.

    • nial

      Interesting points Ben, but i don’t believe in ever risking more to gain less, this makes no sense to me. Your theory may be correct to some extent, but what I do works well so I won’t be changing it.

  16. chris

    great point Nial, it takes 2 losses to kill one profitable trade, with a good strategy its almost impossible to lose.

    thanks, keep up the good work!

  17. Robert

    Excellent point. I have just started demo trading and am finding your stuff the most helpful of all I have looked at.
    Thanks a bunch.

  18. Joe

    I am feeling so relaxed with this idea about price action and Love how it works out. I am putting it to use But must say it is the easiest I have ever heard of.

  19. Max Wellmann

    Interesting and I don’t doubt the results for a second. The only thing I would have liked to know is whether your decision to buy or sell was also completely arbitrary or judgement based.

    All the best and thanks for your tutorials, Max

    • nial

      Slight bias to trade with recent momentum on 4 hour chart, but really it was completely a random entry..

  20. David

    I am glad that you have managed to stay dry, I am sure Australia will bounce back from this.

    Best wishes David

  21. rikus

    Hello Nial,

    Appreciate very much for the educational articles especially risk reward. Thanks very much.

  22. Carl Graner

    Hi Nial

    I would say this is the best article you have ever
    written and is exactly what I needed to understand.
    Instead of getting hung up on each trade individually
    I need to evaluate many trades over time. I always talk myself out of trades not wanting to lose but I need to take all the valid trades and let the risk reward work out.


    • nial

      Thanks dude ..
      I really enjoyed writing this article., so I am glad you liked it.
      I know many members who have used the concepts of risk reward etc, to turn there trading around, I really think this is important. Risk reward and sticking to the trade is the key.

  23. Peter

    I’ve been a member since October and have been profitable every month since joining. I think that this, the 2:1 risk to reward, is the KEY. Thank you Nial!

  24. Vic

    Thanks Nial. This one is no different, succinct and no messing around. By far your PA method makes the most sense…

  25. Yo Sap

    When I followed Nial’s PA method, I made money. When I don’t I lose money. It’s that simple!! I have a habit to do at least 3 trades a day. That is bad.

  26. Jason Tay

    Hi Nial,
    Your article always inspire me alot!! Thank you for writing these good articles.

  27. Robert Garrison

    Very, Very good lesson nial thank you

  28. Wes

    Your courses & videos are excellent


    Nail our hearts goes out to all Australians.
    lot of love for you and family

  30. Andrew

    Huge, Huge, Huge turning the corner, information! This should be read and re-read often. I feel this is the one thing that is holding back many traders that are so close to becoming consistently profitable. Just the logic alone in this article is powerful enough to snuff out any and all of the typical trading emotions that so often hold us back. Thank you Nial for what you are doing.

    • nial

      Pay it forward.. share it with others , that’s why I post it, glad it helps.. enjoy.

  31. Alex

    Spot on again Niall. I get lots of emails but my pulse quickens when i see one from you because i know it is going to be crystal clear instruction on price action trading which i feel i am really beginning to get a handle on from your generous teaching. Thank you so much i will become a subscriber soon!

  32. Doug

    Nice Nice, Nice.

  33. john

    This rang a bell because I never quite grasped the importance of at least a 1 to 2 plus risk reward. I thought that would be nice. I was thinking and wanting to believe I could achieve a higher successful trade percentage because professional traders had better odds. So it is very sobering to here professional traders only work with 50/50 odds.



  34. galen

    Mr. Fuller

    Thanks for sharing results of your experiment. Rather clear and to the point. Risk/Reward plus all your previous advice have given me opportunities from the ground up to become a successful trader. I enjoy each article.

    Your student

  35. mikanthony

    Hi, Nial.
    I have followed your articles & instructions for quite a while now, but just that I am not quite too good at commenting. I am now compelled to comment for two reasons; most importnantly is to give my heart out to the nice and loving people of Australia, to tell them that we feel what they are going through at the moment. We love you & and we are praying for you. The current global events: i.e, natural fury, violence, man’s inhumanity to man, waves of killings, and terrorism, all these called for the wise christians to turn back to their first love-God,Bible to seek for answers & refuge.God loves you, and you will all come out of this stronger Amen.

    The second reason is to thank you so much Nial for your love, support & free sacrifice to humanity. I have’nt met you in person but I can feel you, &,am almost certain that you are soft and kind person.

    Hope to see more of me soon.
    Thanks you so much Nial & I wish you the very best in Life.
    From Nigeria

  36. Steve

    Every now and then a gem of wisdom graces my screen. This is one of those AH AH moments. You seriously have my attention.

    • nial

      thanks for the feedback, I appreciate the praise :)

  37. seb

    Hi Nial, First thing i just like send out my sympathies to all australian, hope they can get over this soon.

    great experiment, very powerful example of risk to reward scenario, I have actually seen a similar experiment done before and surprisingly the results were practically the same, so i guess it just goes to show that if you cut your loses short and let your profits run longer that system in it self will keep your account in good health, add to this the edge of price action and it can’t be clearer
    ”a winning combination”..

    I must say that since i have been applying your price action method to my trading it just gets better week in week out… nice one mate, best regards…

  38. Roberto

    WOW !!!!, great article, astonishing and powerful simplicity of your articles Nial … you hit me with your words …. many thanks.

  39. ali

    Dear Nial,

    Many thanks for all your helpand God bless you

  40. Shah

    Hai Nail, great highlights that you brought up. But sometimes, when we use price action method, for example indside bar on daily TF, we found that the SL sometimes is more than 100..eq 125pips. Shall we set the PT to 250?
    My point is how to do in the case of high/big SL?

    • nial

      It will all depend on the chart, if a 200 pip profit looks possible, and the setup is valid, then if you are using a 100 pip stop.. the 200 pip target will make sense. However, alot of the time, we have the ability to tweak the stop loss to be less pips, and that means the target will become less. The article above was done on intraday 4 hour chart, so the stop loss was obviously tighter/smaller. If your trading the daily chart, and looking for a 2 to 1 risk reward, then there just make sure the chart, levels and trend allow for this. You would ideally be trading in a trending market.

  41. azmiharun

    Thanks Nial, You are super, I just enter the market and use your tools and make some improvement out of it.
    . Sorry for your people having difficulties.

  42. Wendy Owen

    Thanks for the good wishes Nial, we were ok in the floods, hopefully you were too.

    Thanks also for very good article

    Qld Australia

    • nial

      Thanks for the wishes and glad to see you are safe.

  43. James


  44. josue

    very nice article…sometimes we forget of risk reward like tool for improving our trades, and this sample shows the matter of it…thanks

  45. Eduardo

    Thank you Nial for your excellent articles and intelligent advice. Every time I read one of your clever articles I get a deeper understanding about trading. Your cut and clean approach to trading is far useful that all that bunch of books that I have read until now. Thanks a lot!
    My best wishes for you and your people in this difficult times in Australia.

  46. Antony

    Hi nial,great article nial,sitting over here in england you just do not realise how bad the flooding is in queensland.It is heart breaking peoples live,s turned upside down,not alot you can say except to pray and remain positive.

  47. Tommy

    This article is so powerful! It has just nailed the spot where my thinking is right now, and has given me greater momentum on the road to becoming a professional trader Thank you for your constant sharing.

    God Bless

  48. Tim

    Hey Nail, great lesson as always, keep sending them. Thanks

  49. Ekenechukwu nigeria

    hello nail i want to say thank God for your life and comminity were you live, and for dose people that lost love ones my God grant them the srength to bear the lost and i pray for all mankind that we will never see this type of dissarsater agin in jesus name Amen. and for the lesson,

    well done

  50. Bob

    Very productive lesson on risk reward and how PA can make it work in our favor.
    Hope the floods end soon.

  51. Frank (South Africa)

    I promise not to get anymore advise from anyone exccept you Nial.

    I will also be joining soon

  52. Tim

    May God bless and comfort the flood victims. Nice article Nial. The experiment is impressive. I’ve been using 1:1, but am going to give 2:1 a try.

  53. Damo

    I would also like to express my sympathy to those who have been flooded out in Australia. A disaster of a most devastating nature indeed. I pray that those who are alive will get the strength to overcome and move on with their lives. May God give the flood victims strength and courage.

  54. Damo

    Nice lesson Nial. What I would like to know though is, did you take these trades with any biases, or you just bought or sold blindly regardless of market direction?

    Still, a very useful article. Thanks man. Big up yuh self Nial.

  55. Jan

    Thanks Niall for the perspective on Queensland. I did not realise the extent of the devastation. May God be with all concerned, our hearts go out to all Australians.
    With regards to this invaluable lesson, as a member I appreciate your ongoing support and lessons, as well as the clear and concise (KISS) principals you apply.
    Anyone still in doubt about joining this community, THIS IS THE REAL DEAL.
    Keep up the good work Niall!!

  56. sez

    Hello Nial.. what a wonderful article u got here..it has given me the courage i need to hold on my trades till it reach take profit..i am most grateful please keep it coming

  57. Kenny

    NOTHING BETTER THAN PRICE ACTION PERIOD! There are no lagging indicators with price action! No messy charts full of lines! Just a simple approach which helps limit emotion and maintain discipline. I love it! Thank you Nial for this course and the willingness to teach your methods to help us become better traders. I have become a consistently profitable trader (averaging 26% percent ROI a month) and can’t thank you enough! :-)

  58. buddy

    great article,

    will be joining soon

    just getting my financing together


  59. Rob

    Great lesson, couldn’t have come at a better time for me. Rob

  60. Zac

    It makes a lot of sense if the tp is always triggered. Usually the price turns around b4 it hits the tp but that’s me. I bow to you if you do better. :)

  61. Mike

    ….Excellent article Nial. And all so true. Thanks for all the great articles you write!!!

  62. Andreas

    Another masterpiece of lesson

  63. Mick O.

    An excellent lesson Nial!
    It gives me even more enthusiasm to do some experimenting along the lines of your 20 trades with at first no PA signals, then another 20 with any PA signals – even weak ones – and finally another 20 with only quality PA signals as a condition of entry. All on demo account, of course.
    Your lesson also encourages me to be even more disciplined with my real account order entries (and exits!)
    I love your intelligent, yet not overly complicated approach to Forex itself and Forex lessons. Please keep the lessons coming!
    Mick O.

  64. Khai

    Wow! i have huge respect for you nial! that really inspires me to do even better in this business. Just for your info, i’ve been using your strategies and heed your advices for almost 6 months now and im already profitting at a consistent basis for the past 3 months.

    Thanks again nial.
    Looking forward to more of your words of wisdom!