Incorporating Risk Management in Mechanical Systems
For some traders, the idea of having to think about risk management for every single trade can be tedious. This is why some traders opt to incorporate risk management rules in mechanical trading systems, which can automatically calculate stop losses and position sizes. Mechanical trading systems have gained in popularity, as these can be capable […]
Different Kinds of Stop Losses
Using stop losses is a recommended risk management practice, as this will allow you to set a point where you think your trade idea might be invalidated. From there, you can be able to calculate your position size based on how much you’re willing to risk on the trade. These calculations will be discussed in […]
What is leverage all about?
One of the biggest advantages to trading in the foreign exchange market is the ability to take advantage of leverage. This enables a trader to use a small deposit to control much larger contract volumes, allowing one to keep risk capital at a minimum while maximizing potential returns. A forex broker that offers 50-to-1 leverage […]
Reward-to-risk, Win Ratio, and Expectancy
As mentioned in the earlier sections, reward-to-risk, win ratio, and expectancy comprise an important aspect of risk management. Reward-to-risk or return-or-risk refers to the ratio of the potential win on one’s trade compared to the predetermined maximum loss. This is typically calculated based on the number of pips for one’s profit target divided by the […]
Does capitalization really matter?
Perhaps one of the first few questions asked by beginner traders is how much capital they would need to open a forex trading account. Thanks to the introduction of online forex trading and the proliferation of several brokers, the barriers to entry in this market have been significantly lowered that you can open a trading […]