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Don’t Confuse a Trade with a Big Stop Loss with Taking a Big Risk

BY , , , , , , , , , ,


In this video:
00:40  Understanding the difference between a big stop loss and a big risk
03:34  Information and trade results from clients
06:46  High reward to risk trading using low risk per trade

It’s really important that you don’t risk taking a big stop loss on a trade and associate with taking a big risk on a trade– they’re two completely different subjects. I’m going to tell more about that right now.

The Difference between a big stop loss and a big risk

Hi, traders it’s Andrew Mitchem here the Forex Trading Coach today is Friday the 4th of April and it’s Non-Farm employment day today and more about that later on in the video and podcast.

But first of all that I want to talk about, the differences between taking a big stop loss on a trade and a big risk on a trade they’re two completely different topics and it’s really important as a trader that you understand the difference. When you place a trade and you place a stop loss at a safety level for a reason to protect the trade and that stop loss amount in pips can vary of course between different currency pairs, different setups that you’re taking, different chart setups and of course different timeframe charts that you’re taking. But just because you’re taking a larger stop loss in terms of the number of pips on a trade don’t associate that or get that mixed up with taking a big risk on a trade. You see, if for example you were to take a 50 pip stop for example on a trade and you placed it there because that’s the level needed to be at to protect the trade. Not 50 pips because it’s an easy number to calculate or it’s the same on every trade that’s not how you should trade but let’s take for example 50 pips as the trade that you’ve decided needs, that level needs, that level needs to be at stop loss.

However if you are looking on that trade at having a profit target of 150 pips and again it’s not because it’s just three times the risk or because a round number. Let’s assume on this trade that 150 pips is the perfect profit target placement that is giving you a 3 to 1 reward to risk trade and so you must not associate that 50 pips for being a too big a risk and it’s an email that I get or a subject that I get on emails that’s really often from non clients and people are just getting too confused with that.

Another example is that let’s say you had $1,000 account and you were taking a trade with a 10 pip stop loss most people would associate a 10 pip stop loss as a low risk trade where in fact it may be or may not be. Let’s say on your $1,000 account you’re taking two standard lots on that trade now on most currency pairs two standard lots equals roughly around $20 per pip if you get stop out of that trade that’s $200 gone. Now $200 out of a $1,000 account is a huge risk. So can you really risk 20% of your account with just one trade? No you can’t that’s the answer. But most people associate that trade but just a 10 pip stop loss that’s been a really low risk and so you can see that by using that example how a 10 pip stop loss for two standard lots equals too big a risk yet that’s only 10 pips so that’s a really important point there to make.

Amazing Clients Trading Results

The other thing that I want to quickly tell you about is the webinar that I held last night for my clients and I’ve got some printouts here on emails from clients that sent me information and trade results over the last couple of weeks since our previous webinar. I’d really like just to read out a few of these just to share with you. I can promise you that all printouts I’ve got, emails addresses are all clients are all 100% genuine comments that I’m about to read out.

The first one here, I just quickly run through them I’m not going to mention names obviously but this person said, “Another 6% today without hardly trying just on the 1-hour charts, I took eleven trades Andrew.”

Another one here from over in the UK;this person just joined a few weeks ago. “I’ve had a good week for the first time since I’ve been trading live in 18 months. I’ve won seven trades in a row in less than two days all with strict risk management of 0.25% this has never happened to me before, I should say. I’ve actually got printouts here of the trades that were taken there as well.

Another person here, “Just completed my first week of trading live and closed with 10.4% with a drawdown of just 2% throughout the week.” So that’s really good.

Another client here, “Having a great couple of weeks back” this person has not been trading for a little while just taking a break. “My accounts at 4% with very limited amount of time actually spent trading, trading daily charts and 4-hourly charts.”, also my favorite.

Another person from over in the US also sent me their entire statement for the week. “Wow what week 15.6% gain focusing on the hourly charts. I’ve started off the week having a losing trade but then recovered and ended up with 17 wins and 1 loss.” That’s just a fantastic result there.

As I mentioned trade results are all there as proof. “Andrew I wanted to share with you one of my bigger trades that I’ve taken 7 pip risks, 57 pip profit.” and when I talked about risk to reward earlier on the video and podcast here you can just see what an amazing risk to reward trade that would be on a 15 minute time frame that was and again there is the setup shown.

Another person here today’s results 2 to 1 reward to risk and a 4 to 1 reward to risk on the EUR/USD and the EUR/JPY   15 minute charts.

Another one 4.3% gain for a satisfactory enough for me to spend the rest of the day reading. Two trades taken at 0.5% risk each they were on the 5 minute charts.

Another one here, “Andrew a 7 to 1 risk to reward at half percent risk per trade.” Again with the trade setup there.

So it’s just really pleasing to see and again I’ve promised you that are all actual emails here from clients that have all been sent through in the last couple of weeks so just wanted to share that information with you. You can see that there are just some superb results coming through and consistent results as well – high reward to risk trading low risk per trade. So this all ties in with the topic that I wanted to talk about today.

Also I wanted to mention on my strength and weakness analysis that I’ve posted on my site and on Forex Peace Army this week. Now I’m just talking about trades that have closed in the ideal anticipated direction. So far this week out of 34 trade pairs that I’ve mentioned 26 have ended up in the closing the next day in the anticipated direction only 8 went the wrong way, so nice high returns there in terms of percentages and the right direction.

US Non-Farm Employment Data

And lastly it’s non-farm payroll so non-farm employment day today out of the US. Looking at my charts now we still have a long time to go before that announcement. It’s only Friday morning for me so it’s around another 17 hours before that announcement comes out. I can see a lot of strength in the USD and a lot of weakness in the EUR and the Swiss Franc. So right now I would be saying the likelihood is the non-farm payroll would be favorable for the USD. That’s from what I can see on my charts right now. The EUR and the CHF do look very weak at the moment. The US has had a quite a lot of strength this week and we’ve seen a big sell off in the NZD/USD hit 0.87 against the US and it’s bounced perfectly of the round number of 0.87 and it’s fallen away quite a lot this week. It just got too over-bought and it just fallen nicely. Probably only a retracement and more than likely it will continue to climb again soon but of course I need a chart pattern to tell me to look for buys if they show. Most of this week I’ll been concentrating on short positions on the NZD pairs and have some really profitable trades from those. So keep an eye for that non-farm employment change out of the US later today. I wish you a fantastic weekend and I look forward to talking to you this time next week.

Bye for now, this is Andrew Mitchem from the Forex Trading Coach.