Risk and Your Forex Trading Style

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The most valuable part of any type of investing, is being aware of what level of risk you are comfortable with. Without a good understanding of this, you will not only tend to over extend yourself but also jeopardize your capital base. 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 trading approach, conservative, moderate, and aggressive.

 Initially you may decide to trade a day chart. The pip movement over a day can be 100’s of pips, so when you protect your position you have to assess what your drawdown parameters are. If your money management stipulates a 3% funds exposure, you will encounter problems on day charts unless your account is significant.

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

 Yes, we all want good returns from out trades, but risking ones account to significant stop positions and large draw-downs is going to clean 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 positioning, 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 reversed trades and your account has vanished!

 An aggressive trader is willing to take riskier trades that a conservative trader. They may be prepared to expose a larger proportion of their capital in riskier trades with the hope of achieving larger returns – often over longer 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 place yourself? Are you a disciplined trader with good 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 confused, you need to learn more, so begin by getting 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.

 Never trade without having all of the facts! Click Here To Get Your FREE Five Day Video Trading Course

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July 2, 2009 · Filed Under Currency Trading

Comments

One Response to “Risk and Your Forex Trading Style”

  1. Tracy W (1 comments) on July 14th, 2009 9:26 pm

    Hello, about 6 months ago, I opened a Forex account, but was conservative and opened a practice account first. It was a lot of fun, pretending to be trading, not to mention the education I got from going this route first. I now have an active account I got through my forex broker, and with their cutting edge platform, it has brought down my anxiety levels tremendously.

    Tracy Ws last blog post..Millennium Traders

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