High Risk earns me great rewards - but i don't like it

Trading Discussion Risk Management Practices
1

Hello all. I want to discuss my risk management. I’m a new trader, 2.5 months into my first account, and i’m finally turning profitable.

I need some advice though, i’ve entered 4 trades over the last 4 weeks on USD/CHF, with a £1000 account i’ve made an average of £65 per those 4 trades which is great right? decent reward. however, the risk is also high, since my stops are set to match the loss or sometimes even have a wider loss than potential gain - £45 TP vs £65 SL for eg.

While i’m happy with my results, i’m not happy with my approach because it’s too much to lose, but here’s the kicker… if i set a reasonable £15 SL vs the £45 gain i would have been stopped out every time. I set a really wide loss because i have confidence in my decision but i got in too early and the price movements are still fluctuating against me while it consolidates. if you look at the 4h chart on this pair, it’s beautiful to look at, really nice ups and downs and has been ranging wide for 3 months now.

How do i enter these trades minimising my risk? EG … i have 2 trades entered in there at the moment, one will take £52 and the other £90, i’m currently losing £12 and £15 and have my losses set to nearly match my TPs and i know this isn’t best practice, but i also don’t know what else to do since i think the market will move to my TP, i entered at .98835 and with the price action currently at .9872 i’m £12 in the red, i set a tp at .99847 to bag me £90 and my SL is set to .97870 at a £90 loss, if i set my loss at £20 it would have already fluctuated past that point and even at £30 loss it’s dancing too close, i don’t want to get ticked out and then see the price finally move my way.

Maybe i’m just not entering at the right time?

How would anyone recomment i handle my SL?
Thanks!

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When you set your SL using TA, check where it is in relation to ATR. If you have a logically placed SL which is within the zone of noise that normal volatility of the market will hit, you will be stopped out for no better reason than just normal volatility, which is pretty unpredictable. So your SL needs to be outside that zone. Depending on the market, that could be 1 x ATR20 or 2 x ATR20 or in between or even more.

Setting a SL there does not mean you need to hold until the SL is hit - if TA is deteriorating, you can still exit manually when you see such signs appearing on the chart.

2 Likes
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Thanks for this. Great of you to get involved. ATR 10 and 20 will be something i look into since i typically just look at recent resistance levels and set under there.

When i enter, i tend to wait until it stops dropping and seems to stabilize, and enter there. with the USD/CHF i found placing my stop difficult because the 4 previous lows were all bottoming at varied points and in order to ensure this new low doesn’t drop to the very bottom of those i had to set it under there, which is quite far from where it actually is hovering at the moment. But how do i know it won’t reach that point overnight?

My thinking is that it’s possible to this to happen, guaranteeing me a £25 loss, with a £1k account it’s a good size loss, but it’s also very unlikely to breach there since it’s held for the last 3 months, but i know it won’t last forever and i don’t want to be on the losing side of these large risk trades. I’m also questioning what is meant by high risk? since you’d think £90 is high risk, it’s set behind multiple walls of resistance points, taking an exceptional political circumstance to break that kind of psychological barrier. Wheras setting my loss to £25 would seem much lower risk - but at the same time increasing the chances of it hitting this point, even though it’s underneath the resistance point by a good few ticks, my experience has seen quite a few trades randomly spike or drop under resistance, stop me out, and within 5 minutes it’s back and on it’s way to take my now non-existant TP. A very tricky learning curve for me.

If you see a trade that looks like a solid winner you look at the opportunity and think, wow, this is great, but would require an almost 50/50 ratio, would you still pass up? Maybe your level of experience would have you enter at a more optimal time? I’m still developing my entry time skill.

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Hi nick, risk management and mindset is the difference between success and failure. You have many options on how to go about things.

The first thing is you are risking too much. You are risking 6% a trade and sometimes 6% risk to make 4%. You should only be risking 1-2% a trade. Now dont get me wrong it can be done and you can make money IF this has been back tested and it works.

Secondly, there is nothing wrong with looking for 1:1 risk reward. That is my only aim for the week and it’s looking after all my bills nicely. So a 1:1 risk reward can definitely work. However, if you want better risk to reward then you can work backwards. Look at where your target is, if it is 90 pips then put your stop loss at 45 pips and you will make 1:2 risk reward.

I see you’re trading the range, therefore your stoploss needs to be below the last low. If price goes lower then just wait for it to re-set. I’m not sure why you want to hold onto a trade after its sold off below the last few lows. In your trade the last low is 9840 from october so that should be good enough below there. The next low is 9800. If it breaks 9840 then just wait either for price to rally back up or bounce off next support.

Lastly, you can also lower your position size. So if you’re timing is off, you can enter with 0.5% then as price falls open another position upto a maximum % risk. This way you wont be worried if you go into drawdown as you are expecting price to drop further.

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Trend-following trades are high probability. Everything else is low probability.

I would always take a trade with a 1:1 r:r if its high probability - but that means i.e. trend-following. Trades based on other TA features will often show dramatic price changes if the pattern is confirmed. But these tend to be one-offs: so you must give them a better r:r than 1:1 because there is just one single opportunity, and you have to get a great entry and a great exit.

In a trending situation, I can get multiple 1:1 trades in the same trend and just keep repeating and repeating. In a trend, the most probably outcome is always continuation: the least probable outcome is reversal.

1 Like
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u need to work on ur entry, that s how u mitigate risk . post some charts showing where u would enter and then we ll see how u can improve ur timing and in the same time have the stop away in a decent place.having a 15 pounds stop and a 45 pound target in very reasonable, and once u know for example u want to go long, all u hav to do is choose a spot where to enter, like near support, round number, some emas, pivots etc, or a confluence of some of these that s even better, and u couple that with price action like 2 candle pattern reversal, engulfing…or pins etc, and u got urself a trade. now if it breaks that level of support and stops u out the likelihood of it continuing is way less, atleast not in the same day, maybe it just needs to accumulate more etc. post some charts and we ll see how u can enter targeting 1 to 3 while with adeguate risk. cheers

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yeah you’re right, i read everywhere from experienced traders than managing RR is one of the most important things to staying in the game.

For me, one of the main reasons i decided to go wide on these trades is that, i had checked the history of 3 losing trades i made a few days prior - i lost a small amount on each, about 1-2% of my acc and the RR was pretty good for them, something like 1:3 kind of thing and as i said i was stopped out on all of them, which combined was about a 4-6% total loss and upon checking where price action moved i discovered that if i set my stops wider, all 3 of them trades would have come through for me, my ideas were right! i found it frustrating that i lost money when i was right and those 3 trades would have had me a great trading day, so then i decided to try setting wider losses.

I just find it hard knowing when the price has really bottomed out, it starts going back up so i thiink ok this is the level, jump in and then it declines a little more and it’s now dancing around my stop so i have to take the L right then or widen my losses. Something i’m still learning

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i see (i think) - for example, something i recently started doing- you see a trend and you may have a rough idea where the end goal is - and along the way you identify where it’s likely to have pullbacks so you set your TP there and then wait for the pull back to get on another trade, always trading with the trend, something like that?

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Sounds like your stop losses are in the wrong places and that’s why you dont know what to do when price gets to that level. Your SL should be at the low of the range. As already pointed out by someone else your SL should be at 9840 not 9787. If you put your stops in the right place you’ll be more profitable.

You can also scale into a position. That way you wont mind it going against you as you can open another buy.

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Recent Successful trade on USD CHF
Recent Successful trade on USD CHF1920×846 228 KB

@Rickster99
@tommor
@1odi
@tradeforex077

Ok - Take a look at this recent winning trade on 1H view - all info is displayed to the top right, in my opinion this was good - but the risk was too high and overall i could have doubled my profits and slashed my risk, but i didn’t know a better entry/exit time according to the data i had upon entry. Remember - all that existed was info up to the first green dot, the rest had not been written.

See the top and bottom trend lines i’d drawn for this pair, which the market had been respecting for 2 months, those lines for me seemed like a sensible place to enter and exit - retrospectively they weren’t the best - but i don’t understand how i’m supposed to know any better at the time?

Look around the first green dot, this is my entry, i saw the market tops, pull back - double tops and then pull back again, this was all the signal i needed to enter, at the time. It seemed like a done deal. it’s peaked now lets enter and watch as it drops - according to hitory it doesn’t hang around the top too long so get in quick while price is still up there.

That didn’t happen initiallty, it was consolidating along the top trend line for quite some time, and eventually it broke out of it to the topside which made me nervous - it began to rise higher and even used this trend line i’d drawn to create a new resistance for further highs, i had increased my SL to about £100 now - i know given my £65 return on this it was stupid, I was asking myself what am i doing? but i still belived it would go back down, it ended up peaking at teh red arrow - about minus £60 - almost the same as i was set to make, i now was at a crossroads, do i pull out here and take the loss and prevent further losses or do i wait? I waited, and thankfully it dropped and i was extremely relieved. had i kept a tighter stop of anywhere sensible between £20-£40 i would have lost it, and with a £900 it was still a lot to lose.

Now - you see my exit, the second green dot. it hit the support line i’d drawn and pulled back - for me this was the signal to exit, so i did. Took my profit and i was very happy, 11% is a big gain for 1 trade. but look then, it dropped a lot further, so if i entered at the actual top of the trend and exited at the actual bottom, i would have made double - is that something you just can’t get hung up on? or is it something you analise to improve your game in future?
I see easily how i could have done better but that’s because i have information now that i didn’t at the time. How was i supposed to do any better?

Side note - total profit for this market move was about £110 since i entered another trade when i saw the clear decline in price action - Smart move or stupid since i could be doubling my risk?

Let me know your thoughts - Would love to hear!
Thanks

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Actually in a good trend I don’t set TP at all but I would probably exit on an early sign of weakness. Of course an early sign of weakness in a trend is also very often an entry opportunity so I am happy to get out with profit manually on a Tuesday and then jump right back in on Wednesday or Thursday when the trend resumes.

12

There are some things we each can do and some things we each cannot do. I cannot pick tops and bottoms. You’ve demonstrated that although you have good TA you cannot pick tops and bottoms either. You didn’t pick the top to enter, you didn’t pyramid your short at the top and you exited the short before the bottom. I’m not saying you made any errors in entering and holding and exiting where you did, I have to wonder whether anyone else could have done better other than by sheer good luck.

Keep doing what you’re good at.

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I’m reading a book that interview many successful traders and have read a few times something along the lines of “where will you enter? - Here (picks a point), and what are you aiming for? - the moon.” saying that they intend to stay in the trade forever, the only time they leave is when they have to. Something i’m learning, I’m still developing my skills of knowing how to tell when a trend is ending, for me, seeing something like a double tops or reversal in price would be it, but this shows i don’t have a good understanding yet, because i don’t know how to tell the difference between a trend end and a pull back - whether you use other tools such as those provided by Market Milk combined with economics news or whatever? I need more time in the game to learn and understand this.

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I can’t tell the difference between the end of a trend and a pull-back either. In real-time they start out looking the same. So I treat each pull-back as if it was a trend end. By the time you know which it is, its over. Trading’s an art not a science.

Beware of people who say they stay in a trade for months at a time. Beware of what great Wall Street traders and market wizards say about how to run a trade. Don’t take any of it literally. I’m not convinced much of it makes much sense for a private retail forex trader.

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Thanks for the feedback, it’s great for me to read things like what you say, as an inexperienced trader i don’t fully know what’s right or wrong, and more importantly what even counts as something that can be considered right or wrong. For eg, i’ve learned from your message that i shouldn’t one day expect to know when a move against your trade is a pullback or the end of a trend, so should consider an exit regardless - depending on the unique circumtances of the situation at the time of course.

I agree with what you say about running a trade, i take it with a pinch of salt now, the old saying “let your profits run” has bitten me on the USD/JPY about a month ago because i ignored a double tops thinking “it’s ok i need to let my profits run it’s just a pull back, that’s what they say” and turned my £20 profit into a £20 loss, it was because of Trump tweeting about the US-China trade deal which then swung the trend against me. All these bad experiences are just lessons for future trades, but it doens’t hurt any less.

1 Like
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@nick533a this is how my usdchf 4hr chart looks like
Screenshot by Lightshot
i enter on 5m or 15, sometimes even on 1hr, depends, but i always do a top down aproach analysis, meaning i start with weekly, daily, support, resistance, trendlines, a general direction if any, then drop down to 4hr and 1hr and do same. but i want intraday action cos i ain t got patience for swing trading, unless i manage to make an intraday scalp turn into a swing trade meaning i take m profits, set BE and let rest run if i think there s potential. i use volume spread analysis to enter trades or analise but i keep into account previous day high and low, daily, weekly, monthly pivots, round numbers and have 2 emas on my chart (mostly for support and resist and tests). i use the fibs to create a battle zone( say i expect price to move lower, then i ll wait for the retrace to 50%>61.8% fib and look for an entry there etc). if my bias and analysis is corect then i have a nice trade and my stop is set above or bellow the 618 fib for example, and i always go for atleast twice my risk, and ussually i take some profit off and set BE as soon as possible, let s say at 1 to 1.i m telling u this just to give u an idea on how u could try and have a beter entry, with a tigher stop and a nice RR. there are ofc more ways, but do not ever risk more to make less, just cos u don t want to admit u are wrong and the market is right!!!
Screenshot by Lightshot
so u entered around there and took 60 pips of DD for about a week, that s insane specially cos it broke out of that 1hr range and retrace to it and was showing signs it might go higher, u should have cut ur losses there and then. ofc this is hindsight for me right now and all this is different when it s happening live, but without even looking at volume, just draw simple support and resistance, and a simple trendline, and u can also trade succesfully based on that. u knew is top of ur channell, right? u see it ranging? having support drawn and that trendline, u wait, and if and when that support is broken and ur trendline u can enter on the break or switch to a lower timeframe, wait for a pullback yp that support or the respective trendline, and if it rejects u go short with a stop few pips above accounting also for the spread. this is just a simple example but do urself a favor and try what i said on demo or whatever, simple support and resustance, trendlines and buy the dips in an uptrend and when the TL breaks look only for retests and short etc… and u ll be amased of the results, same with ranges etc. hope this helps and if u got anymore questions feel freee to ask, happy to help if i can ofc.

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lol, just out of curiosity i looked, set 1hr fib from high to that recent low before the fall and price retraced to 50 and 61.8 fib hahahah on my chart that s intraday pivot(50%) and intraday long(61.8%). very tight stop at a reasonable place and nice RR. just as an example

18

@1odi
Hi, thanks for the reply, how to you take in to account volume? i didn’t know you could see trade volume of the markets?

Look at your first screen shot again - do you see the lower trend line on your first screenshot and how the price went under there and seemed to use it as resistance?

on my 4h graph where i drew fib lines, the pullback that’s showing now is just at the 618 fib retractment, so i consider this to be a part of it’s upward journey. Here’s my 4h screenshot - it paints the movement in a different light. What do you think?

USD-CHF 4Hour
USD-CHF 4Hour1688×814 248 KB

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dude, u didn t drew the fibs corectly first of all. i see u have macd on ur chart, well, where u entered the macd hasn t even crossed yet and is above the 0 line. 4hr chart trumps 1hr as daily tramps 4hr. the volume i use is standard in mt4 indicators and it s tick volume as were in forex. it stands for activity, when volume increases means the activity increased in both buying and selling. if u d have respected ur support and resist from this chart and sold at that spike u would ve done better. it s just my opinion, ofc u are free to trade how u choose, but make sure atleast that ur using corectly those tools. i last thing i wanna add, when u see candles like that, that leave a big wick and close in the lower part that s selling pressure comin in and at that moment in time the bears are winning. specially when u have a range or a clear resistance and u see something like that, should draw ur attention. that alone could give u better stops and rewards for ur bucks.
cheers

20

Please how do you detect pull backs? @nick533a I trade the trend, but use the lower time frame price action to detect early pullback still, I lose some profit money using this method. Is there any indicators you use to detect much more early pullback signal? Or you just wait for the pullback to happen naturally before you TP? Thanks