1. Appetite for Risk
Working out your appetite for risk is central to proper forex risk management. Traders should ask: How much am I willing to lose in a single trade? This is particularly important for the most volatile currency pairs , such as certain emerging market currencies . Also, liquidity in forex trading is a factor that affects risk management, as less liquid currency pairs may mean it is harder to enter and exit positions at the price you want.
If you don’t know how much you are comfortable with losing, your position size may end up too high, resulting in losses that may affect your ability to take on the next trade – or worse.
Let’s say 50% of your trades are winners. In the long term, mathematically you can expect to have runs of multiple losing trades in a row. Over a trading career of 10,000 trades, the odds suggest that you will face 13 sequential losses at some point. This underlines the importance of knowing your appetite for risk, as you need to be prepared, with sufficient money on your account, for when bad runs hit.
So how much should you risk? A good rule of thumb is to only risk between 1 and 3% of your account balance per trade. So, for example, if you have an account of $100,000, your risk amount would be $1,000-$3,000.
NO EMOTION DURING TRADING.