1. Choose a rationale
Use relevant market levels and the setup to explain each target. Record that reasoning before the outcome is known.
2. Compare reward and risk
For a long example, subtract entry from target for potential reward and stop from entry for planned risk. Express both in the same units. The ratio does not tell you how likely a target is to be reached.
3. Plan quantities
Specify quantities for partial exits and how the remaining exposure will be managed. Account for transaction costs. A nominal break-even stop does not guarantee no loss.
A practical example
| Entry / Stop / Target | 1.1200 / 1.1150 / 1.1300 |
|---|---|
| Planned risk | 50 pips |
| Potential reward | 100 pips |
| Reward-to-risk | 100 ÷ 50 = 2:1 before costs |
Key takeaways
- Use consistent price units.
- Plan quantities for partial exits.
- Review realised results, not just planned ratios.