Level of risk in a Forex trading operations
There are a high level of risk in a Forex trading operations. For such instances, How can they identify key risk areas and issues that might happen? What method of application do they use? As for security reasons, are there support for monitoring the build up of credit risk?
Understanding Forex Risk Management
Betting Strategies
Quote:
There are three basic ways to take a bet: Martingale, anti-Martingale or speculative. Speculation comes from the Latin word "speculari," meaning to spy out or look forward.
Know the Odds
Quote:
So, the first rule in risk management is to calculate the odds of your trade being successful. To do that, you need to grasp both fundamental and technical analysis. You will need to understand the dynamics of the market in which you are trading, and also know where the likely psychological price trigger points are, which a price chart can help you decide.
Liquidity
Quote:
The next risk factor to study is liquidity. Liquidity means that there are a sufficient number of buyers and sellers at current prices to easily and efficiently take your trade. In the case of the forex markets, liquidity, at least in the major currencies, is never a problem. This liquidity is known as market liquidity, and in the spot cash forex market, it accounts for some $2 trillion per day in trading volume.
Risk per Trade
Quote:
Another aspect of risk is determined by how much trading capital you have available. Risk per trade should always be a small percentage of your total capital. A good starting percentage could be 2% of your available trading capital. So, for example, if you have $5000 in your account, the maximum loss allowable should be no more than 2%. With these parameters your maximum loss would be $100 per trade. A 2% loss per trade would mean you can be wrong 50 times in a row before you wipe out your account. This is an unlikely scenario if you have a proper system for stacking the odds in your favor.
Leverage
Quote:
The next big risk magnifier is leverage. Leverage is the use of the bank's or broker's money rather than the strict use of your own. The spot forex market is a very leveraged market, in that you could put down a deposit of just $1,000 to actually trade $100,000. This is a 100:1 leverage factor. A one pip loss in a 100:1 leveraged situation is equal to $10. So if you had 10 mini lots in the trade, and you lost 50 pips, your loss would be $500, not $50.
the source
Risk Management Techniques For Active Traders
Planning Your Trades
Quote:
As Chinese military general Sun Tzu's famously said: "Every battle is won before it is fought." The phrase implies that planning and strategy - not the battles - win wars. Similarly, successful traders commonly quote the phrase: "Plan the trade and trade the plan." Just like in war, planning ahead can often mean the difference between success and failure.
Stop-Loss and Take-Profit Points
Quote:
A stop-loss point is the price at which a trader will sell a stock and take a loss on the trade. Often this happens when a trade does not pan out the way a trader hoped. The points are designed to prevent the "it will come back" mentality and limit losses before they escalate. For example, if a stock breaks below a key support level, traders often sell as soon as possible.
How to Effectively Set Stop-Loss Points
Quote:
Setting stop-loss and take-profit points is often done using technical analysis, but fundamental analysis can also play a key role in timing. For example, if a trader is holding a stock ahead of earnings as excitement builds, he or she may want to sell before the news hits the market if expectations have become too high, regardless of whether the take-profit price was hit.
Calculating Expected Return
Quote:
Setting stop-loss and take-profit points is also necessary to calculate expected return. The importance of this calculation cannot be overstated, as it forces traders to think through their trades and rationalize them. As well, it gives them a systematic way to compare various trades and select only the most profitable ones.
[ (Probability of Gain) x (Take Profit % Gain) ] + [ (Probability of Loss) x (Stop Loss % Loss) ]
the source
1 Attachment(s)
How to create a risk and money management module
MQL5 WIZARD: HOW TO CREATE A RISK AND MONEY MANAGEMENT MODULE
Attachment 26145
Quote:
MetaTrader 5 provides a powerful tool that allows you to quickly check various trading ideas. This is generation of Expert Advisors using the MQL5 Wizard on the basis of ready trading strategies. An Expert Advisor created with the MQL5 Wizard, is based on four pillars - four base classes:
...
read more here
Forex Trading For Beginners - Risk Management
Risk management to most new traders usually goes in one ear and out the other. They soon realize how important it is when they lose a big chunk of their money or even worse blow out their account.
In a way we think this is healthy for investors as long as the amount of money they lose is small. Every single Forex trader that has lost a lot of money or even lost their account, get's that feeling stuck in their head and it scares many investors to never do it again.
The reason why we think it is a good thing is because, it's good to get that feeling into your head so that you know how awful it feels, so that in the future you do everything in your power to make it never happen again, it's better to learn the feeling with a small amount than a big amount.
Many Foreign Exchange investors have never learned from a profession trading education provider to teach them how their risk should be calculated.
They learn from sources online that give them a certain amount of pips or money to lose per trade and then they tell them to cut their losses.
This is the worst advice you can ever hear or follow, every single stop loss is different, so this means every single position size is different!
You see your risk management is calculated by how far your stop loss is, now if you watched this training video you saw how we find our stop losses! It's always at the previous high or low based on the trend that is happening!
For uptrends you will want to put your stop loss at the previous low & for downtrends you want to put it at the previous high.
1 Attachment(s)
Money Managment Indicator
Money Managment Indicator - indicator for MetaTrader 4
Attachment 38677
Quote:
This indicator allows trader to calculate the proper lot size based on percentage risk and stop loss. The stop loss can be defined either using Average True Range ratio or fixed points.
It has been developed to operate based on Points ( 10 Points = 1 Pip ) as to consistently usable with Currency pairs, Indices and Commodities on MT4 platform.
1 Attachment(s)
Risk and capital management using Expert Advisors
Attachment 46581
Quote:
This paper is not about how much to invest or to risk on a trade. No, not at all. These are subjects well treated and forever concluded by many authors in the last decades. This paper is about what you can not see in a backtest report, what you should expect using automated trading software, how to manage your money if you are using expert advisors, and how to cover a significant loss to remain in the trading activity when you are using automated procedures. In short, how to invest using expert advisors?
more...