Risk Management in Forex is Essential – Use this Calculator
This lecture is from the site forexcourseandsignals.com. You can get full access to the course and the signals there.
Points to remember:
- Avoid losses so you can stay in the game.
- Most beginner traders overlook risk management.
- Drawdown will happen.
- Most small accounts fail due to increased risk.
- Treat your small account as if it were a large account.
- 3:1 Reward to Risk is ideal.
- Risk to Reward ratio is more important than wins to losses ratio.
- Beginners tend to cut winners early and hold losses too long–they should do the opposite.
There are two things to consider:
- Position Size
Pro forex traders use much less than the available leverage. They may use a leverage of only 2:1. US traders are limited to a leverage of 50:1, which is acceptable to start with. Gamblers use as much leverage as they can, sometimes using as much as 500:1 leverage.
Margin is the amount of money you put up and a margin call is used by your broker to liquidate your positions when margin exceeds certain levels–check with your broker on this.
Your position size is the amount of units that you buy or sell. For example, $10,000 would be 10,000 units. To figure out your position size, use the position size calculator below. You can toggle the percentage risk to cash risk if you desire.
- Use a stop loss on every trade.
- Don’t add to losing trades.
- Don’t trade on instinct–use analysis.
- Always trade with a plan–don’t gamble.
Pip Calculator widget is provided by DailyForex.com – Forex Reviews and News
Position Size Calculator
Position Size Calculator widget is provided by DailyForex.com – Forex Reviews and News
These infographics are pages from the awesome book Infographical Forex.