Risk and Your Forex Trading Style

The most critical part of any style of investing, is knowing what your risk tolerance is. Without a good understanding of this, the chances of you loosing everything are very high. Each type of Forex trade carries its own risk parameters and these will closely relate to your risk tolerance. Then there is your trading approach, conservative, moderate, and aggressive.

 At the beginning you may decide to trade a day chart. The pip movement over a day can be 100’s of pips, so when you determine your stop position you have to assess what your drawdown limits are. If your money management is set at a 3% funds exposure, you will get into problems on day charts unless your account is significant.

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

 Yes, we all want increase our wealth from out trades, but exposing ones account to large stop positions and large draw-downs is going to burn 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, determines 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 larger amounts of 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 consider your trading style to be? Are you a level headed trader with correct money management and risk rates, or a trader that will take high risks for big pips? If you are the latter, you will not be trading 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 an enormous amount and it will help you trade with safety to win pips not risk everything.

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