Risk and Your Forex Trading Style

The most critical part of any style of investing, is understanding your personal risk tolerance. Without a good knowledge 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 will closely relate to your risk tolerance. Then there is your style of trading, conservative, moderate, and aggressive.

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

The 5M or 30M charts maybe more suitable since the pip variation tends to be less, so your stop strategies can fall within your management range.

Yes, we all want to make money from out trades, but jeopardising ones account to large stop positions and large draw-downs is going to burn out your account and trading career in no time at all.

A practical 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, indicates a 100 pip stop position, then you are not risking 3% but 30%! Three wrong trades and your account has vaporised!

An aggressive trader is willing to take riskier trades that a conservative trader. They may be prepared to expose larger amounts of money in riskier trades with the hope of grabbing bigger profits – 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 think you sit? Are you a disciplined trader with correct money management and risk rates, or a trader that will take over the top risks with all or nothing 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 confused, you need to understand what you are about to do with your hard earned funds, so commence your Forex training with Top Dog Trading, you will learn a huge amount and it will help you trade with safety to win pips not risk everything.

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