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Risk and Your Forex Trading Style
The most critical part of any style of investing, is understanding your personal risk tolerance. Without a good comprehension 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 style of trading, conservative, moderate, and aggressive.
Initially you may decide to trade a day chart. The trading movement over a day can be many of pips, so when you protect your position you have to assess what your drawdown limits are. If your money management dictates a 3% funds exposure, you will encounter problems on day charts unless your account is large.
The 5M or 30M charts maybe more appropriate since the pip variation tends to be less, so your stop strategies can fall within your management range.
Yes, we all want to make money from out trades, but risking ones account to large stop positions and vast draw-downs is going to wipe out your account and trading career in the blink of an eye.
A practical risk level is 3% or $300 on a $10,000 account. Switch 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, dictates 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 open to taking riskier trades that a conservative trader. They may be prepared to 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 place yourself? Are you a disciplined 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 start 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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