Risk and Your Forex Trading Style

The most critical part of any type of investing, is being aware of what level of risk you are comfortable with. Without a good comprehension of this, the chances of you loosing everything are very high. There are many different types of trades you can make on the Forex, each possesses its own risk parameters and these your choice will be defined by 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 determine your stop position you have to assess what your drawdown limits are. If your money management stipulates a 3% funds exposure, you will encounter problems on day charts unless your account is large.

 The 5M or 30M charts maybe more suitable since the pip movement tends to be less, so your stop positions can fall within your management criteria.

 Yes, we all want good returns from out trades, but jeopardising ones account to significant stop positions and excessive draw-downs is going to clean out your account and trading career very quickly.

 A practical 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 adverse trades and your account has vanished!

 An aggressive trader is open to taking riskier trades that a conservative trader. They will 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 ‘crash and burn’ trader.

 So where do you think you sit? 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 bewildered, you need to gain some knowledge, so commence 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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