Drawdown is defined as a considerable reduction in your account due to a series of losing trades. This can be calculated by getting the difference between the highest level of one’s account and its lowest point. For instance, when you’re initial capital of $10,000 has grown to $10,500 then you undergo a losing streak that … Continue reading Understanding drawdown
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 … Continue reading Reward-to-risk, Win Ratio, and Expectancy
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 … Continue reading What is leverage all about?
As discussed in the previous section, leverage can get tricky and may lead to margin calls when you don’t know how to manage it properly. This section illustrates more examples on the common mistakes beginners make when handling leverage and how to avoid margin calls. Let’s say you have a balance of $10,000, which is … Continue reading Leverage and Margin Calls
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 … Continue reading Different Kinds of Stop Losses
