Risk and Your Forex Trading Style
The most valuable part of any style of investing, is knowing what your risk tolerance is. Without a good knowledge of this, the chances of you loosing everything are very high. Every Forex trading strategy carries its own risk parameters and these will closely relate to 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 many of pips, so when you protect your position you have to assess what your drawdown risks are. If your money management stipulates a 3% funds exposure, you will encounter problems on day charts unless your account is substantial.
The 5M or 30M charts maybe more appropriate since the pip range tends to be smaller, so your stop placements can fall within your management margins.
Yes, we all want to make money from out trades, but exposing ones account to large stop positions and excessive draw-downs is going to burn out your account and trading career very quickly.
A practical 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, determines a 100 pip stop position, then you are not risking 3% but 30%! Three reversed trades and your account has gone!
An aggressive trader is willing to take riskier trades that a conservative trader. Their tendency is to expose larger amounts of money in riskier trades with the hope of achieving larger returns – often over extended trading time frames but they may still use the similar strategies for shorter times as well. Very much the ‘crash and burn’ 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 learn more, so commence your Forex training with Top Dog Trading, you will learn an enormous amount and it will help you trade with safety to win pips not risk everything.
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Tags: Forex Risk, forex trading, Forex Trading Style, Forex training, money management, Risk and Forex Trading, Top Dog Trading
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