How do I calculate/manage risk?
Managing your risk is absolutely essential as profitable trader. When you enter a trade there are only five outcomes:
1) Big win;
2) Small win;
3) Break even;
4) Small loss;
5) Big loss.
As long as you can cut off the "BIG LOSS", no matter how bad you trade, its still likely
that you are a profitable trader. Most people's account got blown up because of big losses.
Here is how I do it:
1) Every trade I only invest 2% of my entire capital; eg a $10000USD account the affordable stop loss would be
2% x $10000USD = $200USD.
2) Calculate my stop loss in pipes;
eg 50 pipes ; $200/50= $4 USD per pipe => Lot size =0.4 Standard Lot
eg 10 pipes ; $200/10=$2 USD per pipe => Lot size = 2 Standard Lot
For a $10000USD account if you are to blown up your account based on the above methodology you will need 50 consecutive losses,
which is statistically impossible.
Apart from the above personally I have also set up my ground rule as follow:
if my account is decreased by 5% daily (including floating losses)
I am done trading for the day. This is because you WILL become emotional at this point and will want to win back.
This win back thought will kill your account. Accept the loss and move on next day. Losing is part of trading.
Managing your risk is absolutely essential as profitable trader. When you enter a trade there are only five outcomes:
1) Big win;
2) Small win;
3) Break even;
4) Small loss;
5) Big loss.
As long as you can cut off the "BIG LOSS", no matter how bad you trade, its still likely
that you are a profitable trader. Most people's account got blown up because of big losses.
Here is how I do it:
1) Every trade I only invest 2% of my entire capital; eg a $10000USD account the affordable stop loss would be
2% x $10000USD = $200USD.
2) Calculate my stop loss in pipes;
eg 50 pipes ; $200/50= $4 USD per pipe => Lot size =0.4 Standard Lot
eg 10 pipes ; $200/10=$2 USD per pipe => Lot size = 2 Standard Lot
For a $10000USD account if you are to blown up your account based on the above methodology you will need 50 consecutive losses,
which is statistically impossible.
Apart from the above personally I have also set up my ground rule as follow:
if my account is decreased by 5% daily (including floating losses)
I am done trading for the day. This is because you WILL become emotional at this point and will want to win back.
This win back thought will kill your account. Accept the loss and move on next day. Losing is part of trading.