Too Much Risk Bad Idea!

Discussion in 'General Trading Discussion' started by TraderAnalyst, Jul 30, 2019.

  1. TraderAnalyst

    TraderAnalyst Senior Investor

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    One should not risk more than you can afford to lose. You must know how much you can risk on each trade. Control your greed and save your capital.
     
  2. Phillip Mark

    Phillip Mark Senior Investor

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    That requires a money management rule or risk management system. Every trader needs this to succeed.
     
  3. J_C_Anderson

    J_C_Anderson Senior Investor

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    Risk is one of the most important elements of trading. Each time opening a position trader exposes his account to the risk related with unfavourabe price movement. It is impossible to create a strategy that will allow trader to avoid risk at all, so it is necessary to build proper risk management system to reduce the number of losing position and their impact on the account balance. First of all trader should check the actual performance of his strategy to know the risk-reward ratio and win rate it offers. This information could be found in trading statements. In case if the strategy is new and there is no track of records, the best way to get such information is backtesting. Nowadays there are special tools that allow traders to check the performance of their strategies through making simulated trades using historical data, e.g. Forex Tester or other similar tools. Backtesting results will help trader to find the way to improve his trading performance detecting the weakness if his strategy. It is also useful to check the results the strategy would provide in long term perspective.
    The optimal risk-reward ratio may vary depending on particular strategy and trading style in general. For example, risk-reward ratio for intraday strategies should be 1:3 - 1:5 while mid-term strategies usually offer 1:5 - 1:10 risk-reward ratio.
     

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