Wednesday, 15 February 2017

Top 11 Trading Forex Mistakes - 5 of 11

Trade sizing to large

Traders have been running their 100k demo account for a while and then want to go live with their actual 1k account. They don’t understand the position sizing and how to set their lot size and set their stop loss so place trades the same size as the demo account.
Result is they run out of money after a run of a few losses.
Before you can select an appropriate lot size, you need to determine your risk in terms of percentages. Normally, it is suggested that traders use the 1% rule. This means in the event that a trade is closed out for a loss, no more that 1% of the total account balance should be at risk.
You may find that the percentage is higher 3% for those that want a higher return and are willing to risk a bit more but for beginners 1% is a good starting point.
For example for 1%, if your account balance totals $10,000, you should never risk losing more than $100 on any position. The math is fairly straightforward, see below. Once you have a risk percentage in mind, determine an appropriate position size.

$10,000 balance
x 0.01 risk percentage
$100 max at risk if you loose the trade

You need to then factor in your stop loss 

If you are trading 1$ pip then you can place your stop 100 pips away, if you are trading $10 per pip then you can only place the stop 10 pips away. Of course the stop should be chosen with regard to support and resistance as they may be targets so bear that in mind.

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