Forex Tutorial – If you want to hold a trading position for a very long time, then you need to understand two things:
- Risk management
- Close position level.
If you have a forex trading account with a fund of $ 1000 or $ 1,000,000 then both of the above must be known before the trade is done.
Why are these two things important?
I will try to illustrate some of my mistakes when starting forex trading. Maybe after reading this, you will better understand how important it is because if you have entered this situation then this experience will be important or if you have not, you will experience it soon.
When I started trading and learning, there were times when I was so sure that trading would make a profit because high confidence would obscure the meaning of risk in forex trading.
Now, without a moment’s power the loss will continue to increase beyond the level of comfort and finally make a big loss! Stop loss is affected by large losses.
Now I am struggling to re-create a forex trading account because I have just suffered a big loss.
What is the risk per trade?
First determine how much you feel comfortable to risk losses on every trade you make. You need to specify how much% (percentage) of risk per trade.
Let’s make some calculations, if you have a risk of only 2% of the accounts on each trade, then every 50 defeats in a row will delete funds in the $ 10,000 trading account.
If you have a 5% risk, the funds in the trading account will run out with 20 defeats in a row. If the risk is 10% for each trade, then you only need 10 consecutive trading losses.
“Can you see the pattern here? the more you have a high risk on each trade. “
If you have funds in a $ 5,000 account then at a risk of 2% per trade, this means equal to the risk of $ 100 per trade. With a 5% risk, you risk $ 250 per trade.
With a risk of 10%, the risk per trade is $ 500.
Personally I trade with risk from anywhere between 1% to 5%. By presenting 5% per transaction for me this is suicide.
Remember, the more you risk, the faster your forex trading account funds will disappear.
Here’s what I did:
- I have a daily trading risk of between 1% and 5%.
- If I lose 5% today, then I will stop trading.
- When I trade tomorrow, I will trade with the risk of trading 1% or 2% every day.
- I will trade with a small risk until I return to the original account.
Why is 2% for risk management? I have bought and read and books on risk management for forex trading and many of these books say that we have to take 2% risk per trade.
Close position strategy
Before you open a position, you must have a plan for how to close positions.
You will close a position when:
- Stop loss
- Profit because the target take profit is hit
- Trailing stop loss is affected
- Close position when the loss is too much.
- Close position when looking at a trade signal entry opposite to an open position.
- Some traders have a system or strategy to close positions
So, it is important for us to know the two things above so that we can use them on daily forex transactions.