I think I’m confused about the basics of risk management.
I’m trying to understand how to use the well known position size calculator (link below) to manage my risk.
As you can see in the image below, I put some random values.
So, if I understand correctly what my example means is that for this setup, I have to buy 20 000 units with a stop loss of 50 pips to keep my risk at 1%. Is that right?
Is this sufficient risk management?
What about the “take profit”? Does its position matter about risk management?
Yep looks good. 1% risk is good risk management. You can change the stop loss depending on your setup and then the calculator will tell you the lot size you should be trading with to only risk 1%. Take profit doesn’t affect your risk management.
risk management is a great skill , and 1-5-% risk is more comfortable when using any kind of trading strategy , but the main problem it not works for all time and maintain same risk ratio is very much complicated issue.
As much as leveraging can be seen as a way to increase your profit, it also magnifies your risk. For that reason, having a good risk-management strategy in place is essential for forex traders using leverage. Forex providers usually provide key risk management tools such as stop-loss orders, which can help traders to manage risk more effectively.
Stop-loss orders
A stop-loss order aims to limit your losses in an unfavourable market by closing you out of a trade that moves against you, by specifying a price that you would like to have the trade closed at. You are essentially specifying the amount you are willing to risk on the trade.
Take-profit orders
A take-profit order works in the same way as a limit order, in that it’s always executed at the target price you specify. Where the market for any product opens at a more favourable price than your target price, your order will be executed at the better level, passing on any positive slippage.
Trailing stop-loss orders
A trailing stop-loss is a cross between a stop-loss and a take-profit order. It aims to limit your losses when the market moves against you; however, when the market moves in your favour, the stop-loss moves with it, aiming to secure any favourable movement in price.
Guaranteed stop-loss orders
Guaranteed stop-loss order (GSLOs) work in a similar way to stop-loss orders, with the main difference being that a GSLO has the effect of placing an absolute limit on your potential losses on a particular trade, as it ensures that your trade is closed at the price you specify. For this benefit, there is a premium charge that is payable on execution of your order. This charge is displayed on the order ticket. We refund this premium in full if the GSLO is not triggered.
Risk norming is probably the basis of risk management. Depending on how much money we are willing to expose our deposit to risk, the amount of transaction we will open depends on it. The trading tutorials advise to open transactions, the risk on which will not exceed 10% of the deposit funds. Optimal risk content is 3-5%. It means that in case of a deposit of $1000, in case of a stop-loss your loss should be no more than 30-50 dollars.
If you want to manage risk, you can’t take more than a 2% risk in the trade. And always trade at 1: 2 or 1: 3 risk-reward. If traded in this way, it is possible to cover the loss of 2 trades with one trade.
Risk management in trading is a very skillful task. There are lots of strategies we follow and take risks in trading. If it works, then definitely gives a fruitful result.
This is a very sensible decision, Tony. It is very important to have a good risk management strategy. Stick to 2-5% risk and set your stop loss and take profit accordingly.
