The most valuable part of any style of investing, is understanding your personal risk tolerance. Without a good comprehension of this, it will be way too easy for you to loose all your capital. There are many different types of trades you can make on the Forex, each possesses its own risk parameters and these tie in directly with your risk tolerance. Then there is your personal approach to trading, conservative, moderate, and aggressive.
At the beginning you may decide to trade a day chart. The trading movement over a day can be many of pips, so when you determine your stop position you have to assess what your drawdown limits are. If your money management dictates a 3% funds exposure, you will get into problems on day charts unless your account is significant.
The 5M or 30M charts maybe more appropriate since the pip variation tends to be smaller, so your stop positions can fall within your management margins.
Yes, we all want increase our wealth from out trades, but exposing ones account to large stop positions and vast draw-downs is going to clean out your account and trading career very quickly.
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 establishment, whether count-back or support and resistance or any other, dictates 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 bigger sums or money in riskier trades with the hope of achieving larger returns – often over extended trading time frames but they may still use the similar strategies for shorter times as well. Very much the ‘crash and burn’ trader.
So where do you place yourself? Are you a disciplined trader with appropriate money management and risk rates, or a trader that will take exaggerated risks for big gains? 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 understand what you are about to do with your hard earned funds, 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.
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