Risk and Your Forex Trading Style
The most critical part of any type of investing, is understanding your personal risk tolerance. Without a good knowledge of this, you will not only tend to over extend yourself but also jeopardize your capital base. Every Forex trading strategy carries its own risk parameters and these your choice will be defined by your risk tolerance. Then there is your personal approach to trading, conservative, moderate, and aggressive.
When you first come to Forex trading you may decide to trade a day chart. The trading movement over a day can be 100’s of pips, so when you protect your position you have to assess what your drawdown limits are. If your money management is set at a 3% funds exposure, you will get into problems on day charts unless your account is substantial.
The 5M or 30M charts maybe more suitable since the pip range tends to be less, so your stop placements can fall within your management criteria.
Yes, we all want good returns from out trades, but jeopardising ones account to significant stop positions and large draw-downs is going to clean out your account and trading career very quickly.
A common risk level is 3% or $300 on a $10,000 account. Change this to pips, 1 standard lot ($100,000) has a pip value of $10 so if you trade end of day and your stop loss positioning, whether count-back or support and resistance or any other, determines a 100 pip stop position, then you are not risking 3% but 30%! Three wrong trades and your account has gone!
An aggressive trader is prepared to take riskier trades that a conservative trader. Their tendency is to expose larger amounts of money in riskier trades with the hope of grabbing bigger profits – often over extended trading time frames but they may still use the similar strategies for shorter times as well. Very much the ‘out in a blaze of glory’ trader.
So where do you think you sit? Are you a highly controlled trader with good money management and risk rates, or a trader that will take high risks for big pips? If you are the latter, you will not be trading for long, that’s a guarantee.
If any of this leaves you a bit uncertain, you need to gain some knowledge, so start your Forex training with Top Dog Trading, you will learn a huge amount and it will help you trade with safety to win pips not risk everything.
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