While stop losses can help a trader prevent larger losses on his trading account, common usage mistakes might lead to a worse performance. Here are some of the ones that must be avoided. One of the most common mistakes beginners make in setting stop losses is placing them too tight. Of course the fear of … Continue reading Common Mistakes in Setting Stops
As discussed in the previous section, the use of an equity stop and a chart stop can be combined to calculate position sizes for each trade. Many beginner traders make the mistake of setting the position size first before determining the stop loss in pips, which can lead them to neglect price action. Proper position … Continue reading Proper Position Sizing
A more complex aspect of risk management is keeping track of several entries across different currency pairs. After all, it can be overwhelming when you are watching various setups with multiple entry points. However, scaling in and out are practices often employed by more experienced traders, as it allows them to take advantage of price … Continue reading Scaling-in and Scaling-out
Another tricky component to risk management is the ability to control exposure with correlated trades. It’s not uncommon to see similar technical setups among pairs with the same base or counter currency, so there may be instances when you’d wind up taking correlated trades. For instance, you spot a rising channel on AUD/USD and you … Continue reading Managing Exposure with Correlated Trades
For some traders, the idea of having to think about risk management for every single trade can be tedious. This is why some traders opt to incorporate risk management rules in mechanical trading systems, which can automatically calculate stop losses and position sizes. Mechanical trading systems have gained in popularity, as these can be capable … Continue reading Incorporating Risk Management in Mechanical Systems
