Forex Trading Risk -- A Structure You Can Follow Right Now
Alright guys pop quiz out of all the videos that I have made so far which. One of them has the. Highest impact, on your. Trading account. None. Of them it's. This one the one, you're watching. And. Here, it is it's, the wrist video you. Knew it was coming and I'm. Very glad it's here this is a central viewing because in this video we. Will, talk, about the dangers of bad, risk many, of you have gone, through what, I'm about to show you it's gonna sting a bit but even, if you're just trading for the first time hopefully. You're. Going to learn what having subpar, risk can do to, your account and you, will want to make sure that you never make these mistakes yourselves, we're, gonna go over that magic number what percent, of your, trading account should, you be putting on every trade we will answer that here we're, gonna use the ATR, do you guys remember the ATR video it is the most. Successful. Video I have ever done in terms of views. People. Loved it and it's. A good thing they did because we are going to carry, that forward into every, video I, think I'm ever going to make in terms of money management we're gonna use that today to. Figure out just how much pip. Value, you should put on every, single trade you make from here on out and we're. Going to talk about how many trades you can have open during. This whole time we're touching on that a little bit and then. After everything, we have talked about there are still a couple ways that you can really, really. Screw, this up so stick around till the end you're gonna want to know because you're gonna watch the whole video for nothing if you don't know that part so. I think you know the answer to this but do you know who, pays. Almost, no attention to risk has no numbers in place has no plan in place and just spends all their time worrying, about trade entries it's. The 99%, yeah, it's the exact type of people that we, strive, not to be it's. The exact, group, I am trying to get you out of that. 99%, of forex traders that either lose money breakeven. Or just. Make enough to barely, keep it going but not enough to trade it a pro-level or say for the retirement or any of the places that all of you I know want to be because you all told me this now, one of you took the time to learn Forex risked your own money just to be in this 99% we're, gonna get you out of that but we have to understand, who these people are, and what they do so we don't become them, let's. Talk about that the. 99% has no set. Risk and if, for some reason, they do it's some random arbitrary number, and they pulled out of thin air and that number changes, depending.
On How they feel depending, on if the last trade was a win if the last trade was a loss if, news. Is coming up you know they, have no set, plan, in place, and, after. They end up losing their money which they're going to do they, chase their wins that risk goes way up so they can get that money back, really. Dangerous, slope, to go down and they. Also have, no understanding, of what we're going to talk about at the end of this video a big trap that people fall into now, let me show you what. Happens, when. Your risk is out of whack and it's. Going to ruin your account it's just a matter of when and let me show you how that affects, everything. You're doing and everything you're going to do in the future so if you have a $50,000. Trading. Account it's just the arbitrary, number I always use and that. Account goes, down. 20%. It goes down to 40,000. You. Might say to yourself well that sucks but I can make it back problem. Is it's really hard to, make back you. Have to beat Warren Buffett's average, annual, return just. To get yourself back to break-even. That. Sucks, and at the rate you're going this has no chance, of happening you. Would have to all of a sudden turn into an amazing trader. Overnight. Just. To get back to where you started, not. Good this is not why you started, trading because this is this here alone, is, a, hole that is pretty much impossible to, get out of let's. Say you took, it down to half the value let's, say you brought it all the way down to. 25,000. You're like well that's still 25,000. I can do something with that right not. Really you'd, have to double that just. To get back to your initial deposit there's. Some very very good traders, there that would take them three four years even, after compounding. To, get a hundred percent return on their money it's certainly, not going to happen to you if this, is you you might as well just pull that twenty five thousand, out hit, the reset button learn. How to trade all over again and then maybe, start over if you think you've figured it out but at this point you might just have to take a step back and think that maybe trading, just isn't for you maybe you're better off just giving your money to somebody else because, getting, down to this level is trading, suicide. Do. Not, let, this happen, now. Getting into these holes is the result of trading, recklessly, but there is also a danger, of trading, too timidly, fortune. Favors the bold nothing. Favours the timid at all, and this. Is a bad way to go too because. Even. If you're a very good trader, if your risk is too small it. Just makes your trading not, worth it let's say you took that 50k, up to fifty two over. The course of a year that's four percent that's, good, but there are places where you can just park your money and do nothing and make, four percent if you just had a reasonable. Risk profile, in place. That. Number could be much higher and that number could be really, worth trading you compound, a better number over. And over and that's, why people, trade that will get you out of the 99%, but. If you're, trading a lot and at a very successful, level, and only pulling this number out because your risk is too low you might as well just demo trade learn.
An Actual. Risk profile, see, what that does if you're, good your. Accounts going to look really nice at the end of the year and you can carry that, system, the entries, the. Trade management the money management the psychology, everything, you're doing right carry, that over into a real account and start making real money now look four percent is not bad it's way, better than most traders do but. If, that, number is low, because your risk is too low you're doing, it wrong the. People in the slide before, that. Took their accounts way down were too reckless the people in this slide here were, too timid here's, what you have to understand, about risk, for all of you people who are too risk averse. The, most successful, people in the, world all, of them they, take lots of risks every. Day all the time the. Big difference. Is is they. Know how to minimize, that risk better. Than everyone else when. You think of the word risk just don't think of being reckless. Or jumping, off a cliff that's not how you need to look at it I take risks every single day I trade, but I make sure that, even if I take a loss the, chances of it being a big loss are very very low we're gonna talk about that in this video that's gonna be really great I take, risks every time I make a video or make a podcast you know I'm putting myself out, there I'm opening myself up to criticism I'm opening, myself to, people. That might watch my video for 20 seconds and lose interest but I minimize, that by doing. My best to one find, a big problem, that people want to solve, to. Share. Knowledge that can help that problem and, 3. Find. Out what people want to know about first and then make a video based on that I am constantly trying to be in that headspace of somebody, who is not afraid to take a lot of risks but also every, time I do. Calculate. The odds and do whatever I can to minimize the, chance of failure, this. Guy doesn't, take any risks he will never be successful he's, always going to be unhappy he's always gonna wonder what, might have been, this. Guy takes a billion. Risks he, makes billions, of dollars and I. Guarantee, you it's not because he was reckless with that risk taking every. Risk Richard, Branson takes is very, calculated. And really. This. Is the only mindset, shift that many of you need to make start. Taking more risk but just understand, that you're going to be ok if you take the steps to minimize, what that risk actually is so. Hopefully, you guys understand. That because you cannot be a good Forex, trader without this it's, something I need to touch on before we go forward but I've touched on it so let's go forward now. We're going to talk about that magic, number. What. Percentage, of your trading. Account should. You be risking on every, single trade you make now. You guys that have been with my videos for some time or those of you who listen to the podcast already.
Know How I feel about can, internal wisdom conventional. Wisdom is what gets people into, the 99% and what keeps them there forever. Conventional. Wisdom and Forex is almost. Always the place you do not want to be you want to seek out better and seek out more in this. Case, conventional, wisdom got it right almost, every, where, you see they're gonna tell you the same thing risk. 2%, of your entire. Trading account on every, trade and they're, right there, exactly right I feel the same way 2% is the correct number here but, it's not always that simple there's, some rules to follow behind this. Understand. 2%. Is the most you can lose on a trade make sure your stop-loss indicates. This all right I'm, gonna show you later. On in, this video how to calculate this and the, best news is is when you actually lose a trade more often than not you're, not actually going to lose 2% you, just set your stop-loss there, a lot. Of times you're gonna exit a trade well, before price even hits it if, you have fifty thousand dollars in your, trading account two. Percent is a thousand, dollars that, seems like a lot of money to risk on one trade and I. Suppose it is but you have to look at it from a percentage point you, don't end up like the timid guy who does really well and only pulls in a 4%, return year, after year you have to take risks like this but. Just understand, that, far more often than not when you lose on a 50 thousand dollar trading, account you are not going to lose a full 1000 dollars again. It's about taking those risks but, also doing everything you can to minimize, those, risks so. Here. Is the point in the video and in this. Is the point in any video I have ever done where, you are absolutely. Going to want to take notes if you don't take notes already you, are going to want to have these little, simple. Equations, next, to you somewhere. So you can always go back and refer to it and plug it in because, if not you're gonna have to go back and watch the video and that's a pain in the ass it's better to have it right next to you so, pause the video get, your notes out and here, we go so you, remember me saying this before and I meant it we're gonna use the, ATR, a lot, here you guys probably. Seen the video and like I said before it is my most popular video, to date, I. Think, it's because people love indicators, I announced. In that video and in the title this is the top one that, I've ever used so people got pretty excited over that but its utility, is for money management and this, is the money management section oh if, you didn't, see that video alleged, let me just go over what it is really quick the ATR, indicator all it, does it, just tells you how many pips, from. The top of the candle to the bottom of the candle a currency pair moves, on average. The default, settings, is 14 which. Means it takes the previous 14 candles. Takes. The distance between the, top and the bottom of those candles, and makes, an average out of it and so this can tell you it. Can it's, never going to predict the future but it can best tell you what to expect going forward how much your currency pair is moving, right now and how much it is expected to move in the future if this, is unclear to you just go back and watch the ATR video if, you haven't like I said it's a central view and you're gonna have to watch it anyway but. The. Magic number for the ATR. Alright, guys here's where you gonna want to write this down. One. And a half times the ATR, for. A currency pair is, where. Your stop-loss should be. 1.5, the. ATR, away, from, where the price is right, now so. For example if the ATR, for a particular currency pair is 80 your. Stop-loss is going to want to be 120. Pips away. Simple. As that, now you always, know where, to put your stop loss at. Any given time once you enter a trade now. This will change if you start making, profit. But. For now when you very first enter a trade this, is how you determine where your stop loss goes your. Stop loss does not go by, some support, or resistance line, or on some Fibonacci, level, no just do it this way and you'll, always know where to put it ignore, everything else, now. Also for your notes we, are going to go to my. Charts, and I'm going to actually do this in front of you so you can see it but. We, now need to find out what our pip value is going to be for, any given pair it's not going to be the same across the board that's ridiculous, we've been through this before, what. You need to do is, find. Out whatever 2% of your entire account, is alright, so we said before if it's, $50,000. 2% is 1000. But. Your accounts gonna go up and down so this number is going change a lot so you need to figure out what this is first and once, you do we call this your risk okay, and, get that part let, me move on then. You got to figure out what 1.5, ATR, of the currency pair actually is you may have already done this but, this is where you're gonna put your stop loss and now.
At This point you know your stop-loss goes you. Know how much of your account you're actually risking so, all that is left to do is take. That risk and divide, it by the ATR, and that. Is going to tell you how. Many dollars. Per pip, you. Need to put on this, trade and then. Once you do this equation over again it's going to show you the pip value for every single trade you make from here on out, make. Sure you have written this down I'm. Going to go to my charts and my trading account and show you how, this works and walk you through it but you are going to want to have this written down somewhere so, go ahead and get all that down and once. You do we're, going to go ahead and go to my charts so. Here we are at practice. Account I set up through onda just. So I could show you guys what to do here I literally, set this up yesterday and I went ahead and entered an illegitimate. An. Exact, 50000. So, what I need to do is take. Where my account is right now yes even if I have a trade open this is the number, I want. Right, here and it's. Moving so I'll just go ahead and kind of freeze it right here, 52:36. I don't worry about the cents. But. We're gonna use that number to figure out our risk. 52-36. So. Put your calculator up and I'm doing this with a mouse so. Be. Patient. 50000, 236 and we will multiply that, by. 0.02. And, that's how you get 2 percent of your, account so. I'm, just gonna round that number up to 1000, and $5. And I am going to write that number down that. Is my risk, so. Now I have, to go to whatever, currency pair I want to trade find. The ATR. Multiply. That by 1 and a half and at. That point I will have almost, every number I need let's, go do that so as usual I don't cherry-pick we just go straight to the Eurodollar the most commonly, traded currency, pair in the world go to the daily chart because, that's what I use and I. Already pulled the ATR, up so. The ATR, is currently. Sitting at let's. Just say 86. So. That's good now I know what to do pull my, calculator, up. Cancel. That and. I will take that 86. Multiply. It by 1.5. And. There. You have it, 129. Now. I have the numbers I need and, it's nice in my calculator did this just put them off to the side to. Figure out what my pip values gonna be now. My. Broker. Does, this for me you're. Gonna see this really soon here but. You. Might want to go ahead and figure out what your stop-loss is going to be now and write that down so let's. Just. Look do we want to go long or short here I don't have a dog in this fight I'm, not in this trade I really. Don't care which way I go this is all demo so. Well we are we are trend traders here let's just go ahead and go long. I don't think you can see it but, the price is at, 1.1. 707. As we. Speak it, will show it here, so. No. Matter where it goes after, I'm done talking, let's just go ahead and take that number 1 1 707. You. Don't really need the decimal it's pretty easy to figure out and then, we're going long so this is going to be - if it was short we would do plus but.
Minus A. 129. Pip stop-loss, and. Now. We know to enter our stop loss in at 1.15. Seven. So. Then I would write that number down - so I can plug that in alright so we know where our stop loss is going to be. We. Have these numbers now we just go ahead and excuse. Me we go ahead and figure, out what our pip value is. Take. That. Number. There cuz we round up and then. Divide, it by. 129. Your. Pip value is. About. Seven dollars and 80 cents. Perfect. So. You can write that one down too. You. Won't have to write a lot of these down going forward because you're gonna be used to it but in the beginning it. Doesn't hurt to write stuff down so. Let's go ahead and make, a trade, knowing what we know all. Right so back here on our. FX. Trade. Go. Ahead and pull. This up he's got all our numbers right there which is nice. We'll. Go ahead and make a trade oh we got rid of our calculator, when we did that maybe we can do both here let's see. Can. Both of you coexist, yes. Okay. So. As far as units go you're. Gonna have to kind of guesstimate this because. We. Know, we. Want this right here, to. Say $7.80. We. Just don't always know how it's gonna get there now the good thing with the euro/usd. It's. Generally. Pretty easy I think we can just go. 780,000. Oh. Not. That much seven, 7800 is what I meant to say and now. We have exactly what we need all, right so. Now we got to put our stop loss in and. If. I just go like this if you guys have a Honda you. Can just do this and put in. 129. And. It'll. Do it all for you but some of you don't have that option so let's just go ahead and do it. The. Old way and. We. Know that, we want one point. One. Five seven. All right so, we have everything in order our stop loss is in place our pip, value, is where it needs to be, we. Have the right amount of risk on the table and, we. Enter the trade. And. There. It is. This. Is how you enter a trade with, the correct amount of risk and that, is how you figure, it out, now. Since, I'm not really in this trade let's just go ahead and cancel it. Close. Yep. Take. Our $10 loss and we move on. So. That's how you do it and I just looked. At what I did and I should have got another digit, over on the. Stop-loss, so for you guys paying very close attention that's, the one little mistake I made I went four, digits instead of five, but. We, need to move on here I hope this makes sense to you I just want to give you the gist of how this works now. Let's move on to the really good news because losing. A thousand dollars even, on a 50,000, dollar account, does. Not sound very enviable, but. The good news is I, rarely. Have my stop-loss hid it. Doesn't happen very often, if. I'm putting. Forth fifty. Thousand dollars in a trading account I'm barely, ever losing, a thousand, because. I have. An indicator that, gets me out of bad trades before this happens, and you can find one too I'm not going to hand feed this one to you this one you're gonna have to find but, they are out there and I call them exit, indicators. All, right so let's go to the outline, of the algorithm, that I have and show. You what you need I have already given you the only thing I'm ever going to actually physically, give you and that's the ATR, indicator. If. You guys follow, the podcast, on episode. 9 I talked. About finding that confirmation, indicator, find, an indicator, that says yes we are officially, in a trend, you may go long or you may go short and a, lot of you have already gotten to work on that and I'm really happy to see that but. You are also going to need at some point an, indicator, that, not. Necessarily. Says okay, you, can go long or short but an indicator that says yeah. This trend you're following, that you're on right now it's probably, done, and. When. You find an indicator, like, that it. Is going to get you out of a trade well. Before your stop loss is actually hit when, looking for an exit indicator, you. Want to find one that lets the trade breathe that doesn't get you out of a trade so, soon that you don't that the trade doesn't have time to actually do what it's going to do but, also, an, indicator.
That Gets you out before. Your stop-loss gets, hit that's. What you are going to want now sometimes, a really good confirmation indicator, can do that but. Sometimes you're. Gonna find another indicator, that just works better for that purpose, so. As you guys are all out there demo trading right now trying, to put that great algorithm together. Start. Also, looking for a great. Indicator, that. Gets you out of trades, before. Price, hits your stop-loss this. Is how you take risks and. Minimize. Those risks all, at, the same time if. You go to the blog for, episode, 9 of the podcast, I will link the blog below, it. Tells, you where the best place to go or I guess best is subjective, certainly, the largest place to go when, it comes to finding those under-the-radar indicators. So, if you are stuck for a place to go to find these and test them out hit. That link below and it will tell you and yes. I am leaking. All of this out piece-by-piece. We, go slow here and we do this for a reason I already, feel like I'm giving you a lot telling, you to go out and find a confirmation, indicator and an exit indicator before I even start giving you these other pieces but. If, you, can start finding good ones you're going to get closer and closer to having an algorithm, that really works and if, you couple that with really great money management the, sky is the limit you. Will be doing things than 99% never, even thought of doing and getting. You to that point is the whole reason, this, channel, was even created in the first place the whole reason the podcast was created the. Podcast, sets you up to succeed the, YouTube channel actually shows, you what to do and what not to do so. You have this in place. Start. Getting that in place and that. In place and. You're. Gonna be in a really really good spot and, we're gonna continue to go slow and ever. So. Slightly, move closer. And closer to. Where you're gonna want to be with this so, but there is a warning now, I mentioned, this early. On in the video there, you can really stumble, over this if you're not careful let's. Talk about it so there's a way to over, leverage here and you're, about to see what I mean by that but I didn't create a slide, on this presentation, that talked about how many trades you can have open at one time really. You can have as, many open, as you want all at two percent risk that's fine as long. As you avoid. This. Pratfall, right here do. Not trade, the same currency, more, than once at a, two percent risk. Write. This down if you have to if you've been taking notes add this to your notes this. Is big, so.
What Do I mean by this. For. Example let's, say you. Really. Think the dollar is going to get stronger and you're. Getting signals, left and right on your. Charts, saying. That, you should you need to put your money behind the dollar, don't. Do this don't. Take. A dollar. Short an aussie, dollar short, and, a. Dollar yen long, all. At a two percent risk. Don't. Do that because, if you do that guess, what your. 2% risk is gone you. Now have six. Percent, of your, trading account on the. United, States dollar, if. Anything. Were. To go sideways with, the dollar or if the big banks just woke, up and said no well it's time to take the dollar short. You're. In trouble you. Might have three, trades that all hit at stop-loss and in. One, fell swoop you, could have put an almost. Irreversible dent. Into. Your trading account you, guys know how long it takes to make up losses, like that do. Not let this happen to you all. Right, now there is a way, to do it right to make sure you avoid this let's talk about it what. You can do is if. You got let's say a long signal, on the, euro yen and then. You also got a long signal, on the. Euro Aussie, just. Pick one and write. It whichever. One you saw first, just. Go with it vaya, con Dios now, you can't take every trade out there sometimes so you can just pick one and go with it or you. Can also go. Half and half it's. Like I said if you're getting a long signal on the euro yen, and the euro Aussie, put. 1%, on one and put 1%, on the other I'm, ok with that that way it's. A little bit of a hedge almost, if one of them doesn't do you well, maybe the other one will and it'll save you from a loss which, is important, or, and. I want you to approach this, last one with, caution. Let's. Say that. The euro yen is giving you a signal, now, but. That euro Aussie, is just, like one candle. Away, from. Giving you a signal, you, know tomorrow. Go. Half on the euro yen and. That. Way you can leave the door open if that. Euro Aussie, actually. Does give you that signal. But. I wouldn't, do, this a lot, I would, rather you do, this. Then. Do that because, in doing this right here, in a, way I've given, you a license, to go timid I don't. Want you going 1%. On every trade just. On the thought that there might be something, else coming around the corner in that same currency because. Then you're gonna end up here you're. Gonna end up like the guy who doesn't, make the money they should have made and your. Results are gonna fall flat alright. So just be careful to not do that so in conclusion let's, wrap it all up here, never. Fear, risk take, risks take, lots of risks, that's what being a trader is all about but, just be smart, about it because, that's what being a good trader is all, about be. Consistent. Take. The numbers I've given you and do, not deviate, from them alright, over. Time, after. You've done this and you've gotten experience with it you, can adjust it how you want, if, you think, there is a better way to do it I am all for that, but. Take. What I've given you and just, get really used to plugging it into your everyday trading, you are going to see some really nice. Results, I think as long as your trade entries are good to getting. That money management type is everything. We, just know the calculations, I hope you wrote them down and. Find. That exit, indicator that. Is going to get you out of a trade sooner, than, it would if it actually hit your stop-loss. I have. Literally. Saved thousands. Of pips just. By having my exit indicator in place and not allowing the trade to go all the way that far so. You know what does that worth to you what, are your pip values sitting at right now multiply, that by a few thousand you know that's really. Really adds up and don't. Fall, into that over-leveraged. Trap, I've given you a structure but, I've also given, you a way to really screw it up if you're not careful so just make sure you avoid that too now. I have given you an entire, risk.
Management, Structure, and we haven't even talked about what to do when, your trade is actually winning that's going to be a whole other video but what, I've already given you is something you can actually use every, time you enter a trade with, defined, levels, and numbers who. Else out there is doing that as, important. As risk management and money, management is, it's. Everything who. Out there is doing that nobody. Just. Us, channels. And websites out there might, throw the 2% number out there and talk a little bit about it but that's as far as they go that, doesn't really help you, every. Single video I make on this channel is no. Matter what it's set. Up to do whether it tells you to do something or tells you not to do something is something that you can take away. Plug. It into your actual trading and. Instantaneously. Start, to see better results, so. If I'm doing that with one video, imagine. What. Your trading is going to look like 20 30 videos down the road as, small. And as new as we are there is not in a more, impactful. Forex, trading channel out there. On YouTube does, not exist this is where you want to be so, hit subscribe give. Me a thumbs up and go out there and start looking for those indicators put that system together and now you have a good risk management system already, in place to go along with it, now. All you need to do is start using it get, that experience under your belt get. Used to doing things this way I think you're really gonna like what you see you guys let's, go get it.