The most important part of any style of investing, is knowing what your risk tolerance is. Without a good knowledge 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.
Initially you may decide to trade a day chart. The bar movement over a day can be many of pips, so when you protect your position you have to assess what your drawdown parameters 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 variation tends to be less, so your stop strategies can fall within your management margins.
Yes, we all want to make money from out trades, but jeopardising 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 placement, 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 reversed 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 ’all risk’ trader.
So where do you think you sit? 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 will not be trading for long, that’s a guarantee.
If any of this leaves you a bit uncertain, you need to learn more, so start 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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