The most valuable 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. Each type of Forex trade carries its own risk parameters and these tie in directly with your risk tolerance. Then there is your style of trading, conservative, moderate, and aggressive.
When you first come to Forex trading you may decide to trade a day chart. The pip movement over a day can be 100’s of pips, so when you select your stop-loss position you have to assess what your drawdown risks are. If your money management dictates a 3% funds exposure, you will get into problems on day charts unless your account is significant.
The 5M or 30M charts maybe more appropriate since the pip range tends to be smaller, so your stop strategies 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 burn out your account and trading career very quickly.
A common 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 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 willing to take riskier trades that a conservative trader. Their tendency is to expose bigger sums or 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 ’all risk’ trader.
So where do you place yourself? Are you a disciplined trader with correct 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 uncertain, you need to learn more, 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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