Advice I wish I had heard when I started trading forex

Written by rasto0007

Hello,

My name is Rasto. I trade under the nickname rasto0007. Trading is an exciting topic to write about. There are many worthy areas to cover. I will choose one or two today and add more in my later posts.

Some time ago I was asked by a starting trader to give advice on how to trade. I said there were many things that make a good trader – good methods on how and when you open and close trades and good trading psychology protecting you from overtrading, from closing too early or too late or from trading in anger or revenge. But if I could give just one piece of advice, it would relate to good risk management. That is the most crucial factor for the long term success of any trader. Good rule here is not to risk more than 2 – 3% of your equity (total account balance) per a given trade. By trade I mean all of the position opened per a given currency pair at the moment. This is the advice I wish someone told me when I was starting.

This rule will protect you from desperately adding to a position when the market goes against you. It also will help you stay away from widening a Stop Loss. Also it will make the trading much more bearable emotionally. And that is important if you are to trade for a longer time. It might seem like it is limiting your profit potential, but the key to the success in the forex is gaining consistently, long term. The compounding effect will take care of the rest. I will write more about this amazing effect in the future.

That is how I trade. I risk 2 – 3% of equity and do not widen the Stop Loss. I look for high probability and low risk setup where the ratio of TP:SL (Take Profit : Stop Loss) is higher than 1.5. That means that I can gain more than I risk. In eToro gain model it means gain per a trade higher than 100%.

Besides my own trading I copy traders that keep to a very sound risk management with a low equity risk percentage. If there is interest, I might write more about how I assess a trader’s risk profile.

If any of these ideas caught your attention, or you would like to ask further questions, please visit my profile wall and leave me a note.

Good trading to you.

Rasto

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