Yesterday's final webinar trade hit the 100 pip profit target
after a few hours of dibbling about. Hope you all got a piece
of it. (short GBP)
Today is NFP Friday and, as usual, it's best to avoid trading.
Something for you to read though while you sit around...
Risk exposure
Many traders expose themselves to far too much risk, and that almost always ends in disaster. If you want to last as a trader, you have to be extremely disciplined when it comes to risk. This means suppressing the emotions and relying on probability, logic and common sense, none of which comes naturally to the human mind.
I guess there are five rules which should be applied on this subject, and if you can manage to apply these rules every single time you trade, there should be no reason for you to fail (as long as you have even a half decent trading system)
Risk Rule number 1 - keep tight stop losses. This is easier said than done, purely due to the emotional tendency to increase stop losses when a loss is imminent, or to add extra positions to an already losing trade. As we have stressed before JUST DON'T DO IT! You can always re-enter the market once you have been stopped out for a small loss, but it is much harder to recover after a huge loss, when your account is down by a significant percentage.
When using candlestick reversal patterns as the entry trigger, simple place the stop loss 5-10 pips below the low of the reversal candle if buying, or 5-10 pips above the reversal candle if selling. This will, in most cases, allow you to use a stop loss of between 20 and 50 pips, with no more than 60 pips as a rule.
Risk Rule number 2 - Do not leverage your account more than required. Whilst we cannot recommend the right leverage for your own trading, we suggest a leverage of no more than 10:1 and preferably 5:1 or lower. This means you should not trade more than 10k for each 1k in your trading account, preferably no more than 5k per 1k in your account. If you stick to rules 1 and 2, you will never be exposing more than about 2% of your account in a losing trade.
Risk Rule number 3 - enter one currency at a time to start with. If you feel that there is a BUY signal on the Euro, the Pound and the Yen all at the same time, rather enter only one currency to start with. For example, enter only the Euro and see how the trade goes. If you win the trade, you didn't need the other two currencies, but if you lose the trade, you didn't lose too much, and you then have a chance to re-enter the same currency and another at a better entry price. In other words, if your direction is short the Dollar, start shorting with one pair only, and then work your way into the other pairs later on if you lose the first trade. This discipline will help you to minimize risk, but maximize opportunities when they come along.
Risk Rule number 4 - Aim for at profits at least twice the size of your stop loss. In other words, if your stop is 30 pips on a trade, be sure to aim for at least 60 pips if the trade is a winner. It is not always possible to do this, but at least have it as a goal. If you are able to stick to this discipline, you can win only 50% of your trades and yet still make a healthy monthly profit.
Risk Rule number 5 - When you have reached your weekly or monthly target, STOP TRADING! I generally aim for 300-400 pips per month (60-100 per week) and stop trading when I have reached those targets. Doing so has several benefits:
•You protect your profits •You avoid over-trading •You take advantage of the cyclical nature of most trading models •You get a well earned rest on occasion •Your results become more consistent
Cheers,
Chris.
