How do I calculate risk?

Nowler

Established member
864 65
Hello folks,
How might I go about calculating risk, in forex for example.

Say... a 1% chance of losing 20% in one month.
Even a good audiobook on the topic would be great.

Thanks
 

FXX

Experienced member
1,140 195
Risk isn't black and white although that's how most retail traders look at it. You have an acceptable loss as one facet and then you have the probability of that stop being hit and that is dependent on sentiment and risk events. It's very difficult to accurately assess. I use a trade management framework that includes many variables in a rule based system to manage a trade.
 

Nowler

Established member
864 65
Risk isn't black and white although that's how most retail traders look at it. You have an acceptable loss as one facet and then you have the probability of that stop being hit and that is dependent on sentiment and risk events. It's very difficult to accurately assess. I use a trade management framework that includes many variables in a rule based system to manage a trade.
So I guess the probability of an exit level being reached can be calculated by something like average true range, coupled with current sentiment and a sprinkle of near term fundamental releases?

I was listing to an interview with someone from Mann Capital I believe, and that's where I got the 1% chance of a 20% losing month notion.

I'm trying to focus my reading around risk management as of late, but apart from using what I know about technical and fundamental analysis to manage my risk, I do t really know what's what's.

I was kinda hoping I could get a black and white formula from someone :cheesy:
 

min6485

Junior member
44 1
Risk can be a very difficult item. So what I do is risk no more than 1% per trade. In a series set of twenty trades if I lost all twenty trades I will be down 20% of equity. This the format I use now if that were to happen where as there were 20 consistent losses at 1% that would tell me I have to tweet my set-up, or market I am trading, risk management. This is why one will want to have a good journal.
 

FXX

Experienced member
1,140 195
Personally, I risk 4% per trade
 

Nuadarne

Newbie
9 0
Some traders try to guess just to find the possible loss they may face. But you understand that this is helpful only if you know the market very well. The easiest way is to check your balance and multiply it by the risk level. This is the simplest way I know.