Risk and Your Forex Trading Style
The most critical part of any style of investing, is understanding your personal risk tolerance. Without a good understanding of this, it will be way too easy for you to loose all your capital. There are many different types of trades you can make on the Forex, each possesses 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.
Initially you may decide to trade a day chart. The bar movement over a day can be hundreds of pips, so when you select your stop-loss position you have to assess what your drawdown risks 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 tradable since the pip movement tends to be smaller, so your stop placements can fall within your management range.
Yes, we all want increase our wealth from out trades, but risking ones account to large stop positions and large draw-downs is going to clean out your account and trading career in no time at all.
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 establishment, whether count-back or support and resistance or any other, dictates a 100 pip stop position, then you are not risking 3% but 30%! Three reversed trades and your account has vanished!
An aggressive trader is willing to take riskier trades that a conservative trader. They will expose bigger sums or 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 level headed trader with appropriate money management and risk rates, or a trader that will take over the top risks with all or nothing gains? If you are the latter, you will not be trading for long, that’s a guarantee.
If any of this leaves you a bit confused, you need to learn more, so begin by getting your Forex training with Top Dog Trading, you will learn a considerable amount and it will help you trade with safety to win pips not risk everything.
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