The most important part of any type of investing, is being aware of what level of risk you are comfortable with. Without a good knowledge 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 your choice will be defined by 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 trading movement over a day can be hundreds of pips, so when you determine your stop position you have to assess what your drawdown risks are. If your money management is set at a 3% funds exposure, you will get into problems on day charts unless your account is substantial.
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 increase our wealth from out trades, but risking ones account to wide stop positions and excessive draw-downs is going to wipe out your account and trading career in the blink of an eye.
A common risk level is 3% or $300 on a $10,000 account. Change 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 establishment, 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 gone!
An aggressive trader is prepared to take riskier trades that a conservative trader. They will expose larger amounts of 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 think you sit? Are you a highly controlled 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 learn more, so begin by getting your Forex training with Top Dog Trading, you will learn a considerable amount and it will help you trade with safety to win pips not risk everything.
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