Risk and Your Forex Trading Style
The most valuable part of any style of investing, is understanding your personal risk tolerance. Without a good understanding 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 tie in directly with 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 bar movement over a day can be many 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 find problems on day charts unless your account is substantial.
The 5M or 30M charts maybe more suitable since the pip variation tends to be less, so your stop positions can fall within your management criteria.
Yes, we all want increase our wealth from out trades, but risking ones account to wide stop positions and excessive draw-downs is going to clean out your account and trading career in no time at all.
An avarage 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, indicates 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 a larger proportion of their capital 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 ’all risk’ trader.
So where do you consider your trading style to be? Are you a level headed trader with appropriate money management and risk rates, or a trader that will take exaggerated risks for big gains? If you are the latter, you won’t be around for long, that’s a guarantee.
If any of this leaves you a bit confused, you need to understand what you are about to do with your hard earned funds, 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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