Risk Management

It is fascinating when FF be able to keep one of the best risk management openings from almost 13 years ago.
I am not sure where and the wellbeing Mr Merlin is right now, but every time I pick up this thread, it fills me up with a lot of emotions.

You don't pick the road where it may lead you. You pick a road with no path and leave your path behind. Think about that for a second, and the realization will start to kick in. Do you feel it?

In Forex , A successful trader obviously main his risk when trading practically. Devoid of risk management we will not be able to keep our capital free from danger. So, this is an inevitable part of successful trading. We should trade by keeping balanced lot size with our capital; it is actually called risk management.

Every trader in this market place has a fear to risk his own money, but if he skilled enough he can manage his risk and decrease his losses to minimum. Risk management tools and techniques are things that you need to survive in the volatile market. the first thing is the stop loss technique. stop loss is a must for every trader to reduce his loss and stay away from margin risk. other thing is to know how to set ‘Risk Reward Ratio’ according to the current market flow. The most important thing you have to understand is you never have to minimize the available margin . keep it at 10 to 20 percent on each trade. and one last thing you obviously have to avoid margin in uncertainly times. Managing the risk on each trade is important ways to protect your account as well yourself.

Actually very important for trader making trade with risk management , because not always as trader they able generated accurate analysis all the time , and with risk management this will making account longer life it compared with greedy in trading.

Absolutely, risk management is one of the main pillar of success in Forex trading! When I was a new Forex trader then I didn’t know about risk management policies of trading, as a result I can’t keep lock my profits into my live trading account but now I know, how to deal with live market with that issue because of having enough knowledge on money management as well as risk management!

There is nothing new to say about risk management as we all know that managing risk with our capital is always a positive way of trading.

If you are not concern about risk management issue then you may not get good result from your profitable trading strategy! The main task of RM policy is, recovering losing trade positions! I know a successful Forex trader who produces only 65% accuracy from his trading strategy but till now he is making enough money around the month, because he maintains RM rules so smartly!

By means of real risk managing plan you can make profit very rapidly by using high leverage ,
even though high leverage always contains high leverage.

Lol.
Despite of real risk managing plan that’s not possible at all to make profit instantly by using high leverage ,
if you don’t have sufficient balance.

Hi all,
Great thread, nice to see someone focusing on risk management rather than entry techniques.
I have been trading for many years now and I know with absolute certainty that risk management is by far the more important thing to understand and get working for you. Yes, you need all the core elements of a system - entry, position size, exits, and in-trade management - each to be sensible in themselves and also to hang together as a coherent whole; but good risk management is what keeps you in the game.

I can't argue with any of the maths presented so far but I simplify it all down to two simple rules:
1. Bet small, i.e. position size so that the loss at the stop is a very small % of account equity
2. Never get into a situation where you are risking the account on a trade, i.e. keep losses small, respect the stop 100%.
You can put whatever numbers you are comfortable with into these rules as long as you follow them.
Note you cannot position size unless you have a stop; without one you cannot determine your maximum loss

One thing I'd like to stress is the mental side of it all. Following all the advice in this thread is great, as long as you are prepared to take frequent, small, losses. I see countless (potentially excellent) systems and accounts blow up simply because the trader was not willing to take a loss. Consider the following:

A trade goes into loss (nothing special about that!). The trader starts rationalising, procrastinating, hoping (NB hope is the worst 4-letter word in trading) it will turn, etc, etc, etc.
The trade moves further against.The trader lifts/widens the stop and/or adds to the losing position, still hoping, etc, etc, etc.
The trade moves further against. Trader does more of the same.
The trade moves further against. The account is blown.

Let's be honest. Who hasn't done that to themselves?
If you had cut at the initial stop, all would have been OK. Just a regulation loss that can be made up next time. Instead we are out of the game and poor. All because we didn't want to take a loss, to accept we were wrong. Let your ego go.

Being wrong is an inherent part of the game. Taking small losses is an inherent part of the game and keeps you in the game. Good risk management and mental discipline does this for you.

Risk is every where, it is in each and every field and in Forex Trading it is quite a lot, thus we need to learn about how to manage it if we wanna survive in Forex Trading.

Yes Risk is everywhere in Fx, because despite of good trading knowledge that’s not possible at all to predict the real faction of this market with certainly , so it is more appropriate to make sure proper risk managing plan before trading .

Managing the risk is a great skill in Forex trading as well more inevitable for ensuring a successful trading life.
if we want to get maximal result by our trading strategies first of all we the traders have to make sure how to manage risk.
Otherwise thats not possible at all to make profit with consistency despite of powerful trading techniques.

My simple risk management technique that I feel new traders should take note of is not to trade too big positions. As a beginner, trade small positions, this way you can gradually learn your way up with the losses not too disturbing. Make sure you don't trade more than 2% of your capital on one trade.

true,not easy,has got lots of reading,I wish it was simple excel sheet or indicator because with the existing equity we make few tardes,certainly more than 1.so there should be excel sheet what shows us according to our equity ,if we want to take X number of traders,how much should we spend on per trade.If someone got that work done,please share.

Forex Trading is quite risky and there is no doubt about it, but here you have a chance to turn those risks into rewards, but for that you will need to learn about the Risk management.

How much you can "safety" risk per trade will depend on essentially two things.

1. The maximum draw down from Peak for your strategy over a long period of time
2. Your personal risk tolerance.

I suggest reading about RoMad http://www.investopedia.com/terms/r/...down-romad.asp

The whole thing about risk is that by risking more, you also have to take less trades within a given timeframe. The risk is always the same; either you cumulatively make money off of a move or you lose money off of a move.

The problem is that people often don't know how much they're risking because they don't really know how to tell which way it's likely to go. If you're always wrong half the time then no money management will keep you from going broke, whether it be in 10 trades or 10,000. It's a balance between the odds, and how much you're making when the odds are still in your favor vs. how much you're losing when the odds are go against you. Ideally, you are maximizing returns when you profit and aren't risking much when the odds go against you. The question is, and always will be, do you know when you're wrong and the odds have gone against you?

A lot of traders hope a losing trade will turn and hit TP and fear that a winning trade will turn and hit SL. They will only close a trade when it's going green(necessary) and add to a trade when it's going red(not necessary). You can't add to a trade to make it profitable. The trade is what it is. Any additional influx is just a new simultaneous trade with 100% correlation. The same goes for a winning trade; adding to it doesn't make it more profitable. You're just taking more simultaneous trades with 100% correlation.

May the odds ever be in your favor.

In the case of wining trade there is a difference if you add a wining trade is going to more profitable. ...

You're just placing more trades that you didn't place originally... you aren't changing anything about the trade. You're just placing more. 2 winning trades with 100% correlation would always be more profitable than 1 winning trade(assuming arbitrary but relative sizing). I thought that was something children get taught.

In the case of a winning trade removing some of it is going to be less profitable. In the case of a losing trade removing some of is is going to be less of a loss.