Risk Management

Trading Discussion Risk Management Practices
#1

Hi I am new to Forex and reading voraciously about it for past 2 months. I have started a demo account and will usually use the daily chart for entries and exit.

I was planning to go live with a $1000 account. If I can tolerate 2 % risk that would be $20 risk per trade. According to risk calculators, if my SL in pips is 100 pips per trade ( for EUR/USD), I can only take 0.02 lot size per trade. That sounds pretty small but I guess it will test my patience.

So no matter what my leverage, I CANNOT take a position of more than 0.02 lot size. I can take another position only after my first position becomes break even and I have maually moved my SL to breakeven position.

With high leverage, I can take a lot of positions, but I should not risk more than 2% capital of my COMBINED positions.

So leverage is not a bad thing at all as long as we can manage our risks properly

Does it make sense?

#2

In forex it is important to be aware of risk and that it is inherent in every take you take and ensure you are willing to take those risk. And in order to manage risk the use of stop and limit orders is quite essential and also in line with a good discipline approach and good trading habit.

#3

Read this:

Understand that your first time trading live money, will more than likely lead to a blown account. I’ve never interacted w/ anyone who “got it right” the first time around.

Just be sure that $1,000 is a comfortable amount for you to donate to the market gods.

Leverage and small trading capital do not go hand in hand.
IMO, you’d ideally never want to lever up more than 3:1 (5:1 MAX).
That’s how you manage risk properly.

#4

I agree with you. Manage your risk properly and you will never lose more than what you have set regardless of leverage. Higher leverage will affect your SL levels so make sure you account for that properly.

#5

The problem is with the times that you are not managed to close orders because the market is moving to fast like with the SNB or with the Russian rubbel

#7

You are off to a great start. The 2% figure is probably not bad, but the best number to use will depend on:

  1. Your trading performance. The stronger your performance, the more you can safely risk
  2. Your drawdown tolerance. Are you willing to risk losing your entire account, or just 50%, or something else?

If you input the above into one of the online risk calculators, it will advise you of the optimum position size to best manage risk.
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As Forexunlimited notes, most people blow up their first account. Even if you win most of your trades (positive expectancy), you can still blow up your account if your position size is too high. Most new traders have no idea how small their position sizes should be for long term success.

Personally, I have a low drawdown tolerance (20% or less) because I have a ton of money on the line. This drives me to just a 0.5% risk per trade. I’m not a bazillionaire, but I sleep well at night.

Like I say, I think you are off to a great start. If you are solidly profitable in demo trading, and are confident that you can maintain that performance, the online calculators will drive you to the right position size. Hopefully you don’t blow your account like so many others.

#8

we can put 10% in account. we will trade with 10%. i use this strategy in liteforex. it was effective. we can lose more 10% in this strategy. when we lose all money we can get free time. we can encrease our strategy.

#9

yeah. we can allow more risky. we can control it. how to keep low risky. it will be better. we can get money again with lower risky. each trader will get money with it. we can get better mind when we trade with lower risky.

#10

That’s a pretty decent one to only risk 2% per trade. This allows the trader more window for trading such that making good gains becomes possible with least pressure exerted on trader.

#11

Just for more clarification - may be you can explain how exactly “drawdown tolerance” impacts your trading strategy. I understand you don’t want to loose more than 20% of your account at any given time but what happens if for some reason you do have a drawdown of 20%?

Does that mean you stop trading temporarily to evaluate your strategy or is that drawdown limit is the end of your trading for good?

A little explanation will help a lot of us.

Thanks.

#12

yeah. we need risky plan. we will keep money better. special when we has profit . we will make money more with more profit. i think we should invest time to this plan

#13

what exactly would be “the best” risk management strategy , i am looking at various strategies and trying to choose which to implement, but i just need an advice about risk management and some other strategies

#14

Hello Jose

I think it is variable. There is no straight answer to the best risk management strategy. Perhaps the best is the one that is most suitable for you. This is something every trader is trying to find.

Risk too little, and you may end up making the same as the risk free rate that the bank offers. Risk too much, and you may lose a big portion of your capital (more than your calculated risk).

To find the right formula depends on the consistency of your performance and the risk level of your tactics. I wish i can give you a straight answer but even for my self the answer keeps changing in line with the consistency/inconsistency of my performance.