Did anyone notice 3:1 reward to risk being metioned as important in the Market Wizards books? Ever wonder why 3:1? It's one of the basics taught to pro traders. Why? Because it allows you to use a position management technique that works like magic. Imagine you make two trades with 3:1 reward to risk on each trade. The first trade is a loser and the second a winner. In each case you buy 10 cars and use a 10 point stop. Trade 1 is a loser of 10*10 or -100 points Trade 2 is a winner of 10*30 or +300 points The net is +200 points and the profit to loss is 300:100 or 3:1. The second method uses a technique where you put on half the position. When the position is ahead by the amount of the stop you add the second half of the position and you move the stop on the first half to breakeven. With this you get: Trade 1 is a loser of 5*10 or -50 points Trade 2 is a winner of 5*30 or 150 points + 5 *20 or 100 points = 250 points. The net is +200 points and the profit to loss is 250:50 or 5:1 In reality it's not quite 5:1 but it is greater than 3:1 because some portion of the trades will be stopped out and end up as half contracts at breakeven and half with a loss. One really good thing it does is it allows you to trade at your largest size when you have a larger than average winner. It also cuts your drawdowns because you've reduced your risk on each trade by half. The idea is to "keep risk constant not the rewards". This along with "let your profits run and cut your losses short" are two of the keys pro's have used for years.