Summary: 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 from 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 it’s been drilled into your head that you should only risk a small percentage of your account on each trade so that you can survive your losing streaks and also avoid a large drawdown in your account.
Big drawdowns usually mean a quick death for your trading account.
The less you risk on 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.
2% or less is recommended.
“2% or less” per trade is a highly recommended guideline for everyone to follow.
We stress “guideline” because it depends on other factors besides your experience like your trading system–mainly how often it takes a trade.
The more currency trades you take per timeframe that you focus on, the less you want to risk per trade.
Lastly, don’t forget to factor in changing market volatility.
Volatility may require you to make adjustments to your entries and exits.
Reprinted from Babypips, the copyright all reserved by the original author.
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