Measuring the Risk of Each Transaction
In forex trading, the trader's profits and losses fluctuate as prices continue to fluctuate up and down. If the trader buys, the trader makes a profit. If the price goes up after the trader buys and will lose when after the trader buys the price goes down. And if the entry trader sells, he will profit when the price goes down and he will lose if the price moves up.
As a trader, you should think about losses at the beginning, not even profits, or in other words, the trader's losses have been measured from the start. Traders can start by determining what percentage of risk per trade. Here's how to calculate a trader's risk:
Always Use Stop Loss On Every Trade
As a forex trader, the trader never thinks about placing a stop loss order, the trader enters a trade without knowing where to place the stop loss, which protects the trader from greater risk if the market wants to go against the trader.
Traders should plan trading for years to come. A successful trader is only one who successfully manages trading risk exposure. Before a trader starts to think about how much money a trader can make from trading forex, make sure to have dealt with the risks first.
Knowing Trader's Limits
Pro traders never risk more than 2%-3% of the trader's equity value. To achieve this approach, the trader needs to calculate the risk borne by the trader's account for every trading activity that the trader carries out, and avoid decisions that can significantly harm the trader. Here are five factors that can affect the risk:
- Stop loss (in pips)
- Pip value (in dollar value per lot)
- Position size (in lots)
- Equity (in dollars)
- Leverage used.
Calculating Risk When Using Leverage
Leverage is a very useful instrument. However, its use can multiply the risk that the trader's account bears when trading. The leverage used will be included in the calculation like this example (say 1:10 is the leverage the trader uses)
Risk : Stop loss pips X Leverage used X Value of pips in $
Risk : 30 pips X 10 X $0.0864 /pip
Risk : $25.92
Risk % : 10.4%
By doing this calculation, the trader can see the limits of the trader himself, at what value the risk borne is too great. No matter how confident a trader is in making a trade, there is always the possibility that a trader's trade will go against the trader's predictions. Therefore, risk management in the trading stage is very important. Then, set a profit and loss ratio that is suitable for the trader.
Comments
Post a Comment