Forex Trading - Rules of Thumb 6

Don’t take too much risk

One of the most devastating mistakes that any trader can make is in risking too much of their capital on a single trade. One thing is certain in Forex trading and that is if you lose all your capital you are out of the game indefinitely. Why should you risk so much when you could be prevented from continuing?

There is a useful saying in poker than going all-in works every time but once. It is the same thing in trading. If you risk all of your account on every trade it only takes one loser to wipe you out, so you will be out of the game at some point as it is only a question of time.

In general, you should only risk 1-3% of the available capital allocated to a system on any individual trade. This is calculated using the size and, the difference between our entry price and our maximum stop price, and the amount of capital that is allocated to the system.

With these things combined we are almost certain never to lose all of our trading capital. In fact, the chance of us hitting our maximum drawdown for the year is extremely low.

All trades that you make should be of a size that almost seems pointless to your future fortune. If you are worried about the size of a trade then it is too big and you should use a lower amount immediately.

Remember that longevity in any trading market is the key to making money by trading. You should trade slowly over a long time with minimal risk, is always preferable to rapidly with too much risk.

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