Sunday, August 28, 2011

Summary: Risk Management

Risk Management

Be the casino, not the gambler!
Remember, casinos are just very rich statisticians!
It takes money to make money. Everyone knows that, but how much does one need to get started in trading? The answer largely depends on how you are going to approach your new trading business. It varies person to person.

Drawdowns are a reality and WILL happen to you at some point.
The more you lose, the harder it is to make it back to your original account size. This is all the more reason that you should do everything you can to protect your account.
We hope that you have gotten it drilled in your head that you should only risk a small percentage of your account in each trade so that you can survive your losing streaks and also to avoid a large drawdown in your account.

The less you risk in a trade, the less your maximum drawdown will be. The more you lose in your account, the harder it is to make it back to breakeven.
This means you should only trade only a small percentage of your account. The smaller the better.

Less is more.

Forex Risk Management

2% or less is recommended.

Although it is desirable to trade with a high reward to risk ratio, it comes with a drawback. In the real world, reward-to-risk ratio's aren't set in stone.

They must be adjusted depending on the time frame, market environment, and your entry/exit points.

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