Determine Risk Tolerance

For someone who plans to trade in any market, this is a personal decision. Most trading instructors will throw out numbers such as 1 percent, 2 percent or up to 5 percent of the total value risked on each transaction put on your account, but a lot of your comfort with these numbers is mostly dependent on your level of experience. Owing to their lack of experience and familiarity with trading overall or with a new method, new traders are generally less sure of themselves, so it makes sense to use the lower percentage risk levels.

You will feel the urge to raise your percentage as you become more comfortable with the system you are using, but be careful not to go too high. Trading methodologies may often create a series of losses, but the purpose of trading is to either realize a profit or retain enough to make the next exchange.

If you were to gamble 2% for each trade you put, on the other hand, you would potentially have to lose 50 consecutive trades in order to drain your account. – do you think is more important?

If you were to gamble 2% for each trade you put, on the other hand, you would potentially have to lose 50 consecutive trades in order to drain your account. Which do you think is more likely: losing 10 or losing 50 straight trades?

Customize your contracts

There are practically infinite quantities of methodologies to use in trading. For each trade you put, some techniques have you using a very simple stop loss and benefit goal, while others differ greatly on the subject.

For example, if you use a strategy that involves a 20-pip stop loss on each trade and you only trade EUR/USD, it will be easy to find out how many contracts you would want to enter into to achieve the desired outcome. However, it can get a little tricky for certain tactics that differ on the scale of stops or even the instrument exchanged, to find out the number of contracts to join.

In the field of trading, it may be a deciding factor for your success to have the freedom to risk what you want, when you want.

Determine timing

In trading, there might not be anything more frustrating than missing a potentially profitable trade simply because when the opportunity arose, you were not available. The issue arises quite frequently, particularly if you trade smaller timeframe charts, with forex being a 24-hour-a-day market. The most reasonable solution to this issue would be to build or purchase an automated trading robot, but for a large segment of traders who are either suspicious of the technology/source or do not want to relinquish the controls, that choice is not viable.

Setting trailing stop orders is another way of handling the risk while you’re not in front of your computer. A critical part of any trading strategy can be trailing stops. They allow a trade to continue to gain value while the market price moves in a favorable direction, but when the market price unexpectedly moves in an unfavorable direction at a given distance, it immediately closes the trade.

 

The trigger price follows the market price by the defined stop distance if the market price moves in a favorable direction (up for long positions, down for short positions). The trigger price remains stationary when the market price shifts in an unfavorable direction and the distance between that price and the market price becomes smaller. An order is triggered to close the trade if the market price continues to move in an unfavorable direction before it hits the trigger price.

Watch the news

For traders who are also looking to control their risk, news events can be especially risky. Some news events, such as jobs, central bank decisions, or inflation forecasts, may cause abnormally large market changes that can create holes, but far more suddenly, like a weekend gap. Much like gaps over the weekend will skip over stops or targets, in the few seconds of a major news event, the same might happen. So, trading after such unpredictable events is always a more risk-conscious move, unless you are specifically trying to take the strategic risk by putting a trade prior to the news case.

Make it affordable

In trade, there is a particular doctrine that is praised by responsible trading bodies, and that is, you should never spend more than you can afford to lose. The justification for a manifesto that is so widespread is that it makes sense. Trading is dangerous and challenging, and putting your own life at risk on the varied and difficult to foresee machinations of market dynamics is equal to putting all your savings on either red or black at your favorite Vegas casino’s roulette table. So don’t gamble away with your hard-earned trading account: invest it in a wise and consistent way.