One of the most important ideas worth keeping in mind when trading a Forex currency pair is to precisely know the right position size (also known as the trade size) which, to a certain extent, is far more significant than the entry and the exit points on the trading chart.
You also have the possibility to develop your very own successful trading strategy, but never forget that the trade size is actually very important because if it is too large or too small it will directly affect your entire trading process with a currency pair.
|The first rule of the Forex market is to avoid risking too much or you will definitely lose your trading account.|
The size of the position consists of the volume of a trade session therefore the idea of “risk” is based on two components: the first is the risk itself and the second is the account risk. I recommend avoiding these situations as they will endanger your capital. I am going to show you how to create the ideal trading position without making any mistakes even when tensions start appearing in the Forex market. I will also aid you in developing your own safe trading strategy.
1. Always Create Limits For Each and Every Trade
First line of advice is to ALWAYS avoid trading without limits. This is probably one of the most important measures in preparing your trading position. This can be quickly done by setting your own risk barriers for each and every possible trade. Most veteran traders risk only 1% and other even less than 1% of their trading account.
For example, if you open a $10,000 trading account, you can risk up to $100 on a trade, but if you are a novice trader I recommend avoiding a risk which is more than 0.5% of your total account.
|Be sure to always use a fixed amount which must be under the 1% value, this way you will manage to avoid all kinds of financial problems with your account. Another solid example is that if you risk $75 on a trade, make sure that your account balance is above $7,500, this way you’ll be risking less than 1% of your total value which in case of a failed trade the repercussions will be close to insignificant.|
Each trading session brings many variations, vertical spikes and sudden fluctuations, but only by using this one rule you will manage to successfully keep your account risk down to a minimum value. You need to set your trading risks before starting a trading session on a currency pair, I highly recommend to avoid risking more than 6% on a trade, keep it simple and professional just keep your risk limits between 1% and 3%. This is the path to success: limits and great strategies.)
2. Find the Ideal Pip Risk on A Currency Pair Trade
Now that you know what an account risk on every trade is and how to take care of it, next let’s focus a little on the actual trading process.
The Pip Risk on a trade represents a set of differences between the entry point and the position of your Stop Loss order which ends the trade only if the trading cross goes towards a point where the loss start to appear to grow. It is important that keep the risk levels on a short leash, be sure to always settle on a solid risk limit and in this manner you can avoid successfully avoid significant losses.
When creating a trading strategy be sure to make it based on volatility levels. Sudden shifts can come at an alarming rate towards you and 10 pips can be lost very fast in a single trade.
Before trading you need to be aware of all the entry points as well as the stop loss position. Only after making this crystal clear only then can you continue with identifying the perfect trading position.
3. Finding the Perfect Position Size in a Trading Session
The right position size is usually based on a very simple formula:
|Risk Pips X Value of the Pip X Volume of the trade = $ at Risk|
Keep in mind that the capital ($) is the Risk value here because this is the highest value you can risk on any trade (step 1) the Pips at Risk (step 2) and the Pip Value for each pair (step 3).
After this you need to find the “Volume of the trade” value which is also known as the size of the position of position size (PS.)
Let’s picture that you have a $5,000 account and that you risk 1% of your total account value on every trade, this way you only risk losing $50 on a trade on the EUR/USD shared currency pair. You can buy 1.3050 and set a stop loss order at 1.3040 this eventually sums up as a 10 pips of risk.
The perfect position size needs to be in accordance with the actual size of your trading account and with the exact specifications of the trade and with the currency pair variations on the chart.
|Enhance your trading capabilities by simply adding a pip value based on the formula presented above and I have pleasure of announcing that you’ve just created the ideal position size.|
In conclusion I believe that the key to a successful trade is smart positioning. Be sure to combine this feature with a risk limit and your chances have just double! Enjoy safe trading! Thank you for your reading time!