Risk and Your Forex Trading Style
The most valuable part of any style of investing, is understanding your personal risk tolerance. Without a good knowledge of this, it will be way too easy for you to loose all your capital. Every Forex trading strategy carries its own risk parameters and these your choice will be defined by your risk tolerance. Then there is your style of 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 stipulates a 3% funds exposure, you will find problems on day charts unless your account is large.
The 5M or 30M charts maybe more tradable since the pip movement tends to be smaller, so your stop positions can fall within your management criteria.
Yes, we all want increase our wealth from out trades, but jeopardising ones account to significant stop positions and excessive draw-downs is going to burn out your account and trading career in no time at all.
An avarage risk level is 3% or $300 on a $10,000 account. Convert 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 placement, 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 vanished!
An aggressive trader is prepared to take riskier trades that a conservative trader. They will 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 ‘out in a blaze of glory’ trader.
So where do you place yourself? Are you a highly controlled 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 won’t be around for long, that’s a guarantee.
If any of this leaves you a bit bewildered, 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 huge amount and it will help you trade with safety to win pips not risk everything.
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