Controlling Your Risk
In this weekly video:
00:23 – A common problem that can help turn your trading around
01:03 – Different pairs pay a different amount per pip
01:23 – The best way to control risk – Use my Lot Size Calculator (download link below for you)
02:10 – Placing your Stop Loss at a safe level
03:25 – Your trading will improve by using the calculator
I’m gonna explain how you can control your risk by adjusting your position size so let's talk about that and more right now.
Hi traders. It's Andrew Mitchem here, The Forex Trading Coach, video and podcast member 258 and in today's video and podcast.
A common problem that can help turn your trading around
I'm going to address a very, very common problem that can really help you to turn your trading around. It's very simple but unfortunately, most people do this the wrong way round. Now, I'm guessing that if you're like the majority of retail traders out there, if you place a trade, you put the same position size on every single trade. I expect you do. Why? Well, because it's easy and most people don't have any other understanding or knowledge about what else to do and so most people you'd see put one standard lot on every trade or put 0.1 or 0.01 lots, just because it's easy. Now, that is quite clearly not a good way of trading but unfortunately, most people do that.
Different pairs pay a different amount per pip
You see different currency pairs pay out different amounts per pip and by putting a 0.1 lot on every single trade, as an example, what it's doing is it means that you're putting that same position size on regardless of the currency pair, regardless of the time frame of a chart or regardless of the stop loss that you're taking.
The best way to control risk – Use my Lot Size Calculator (download link below for you)
Now, there's a far better way of doing it and I used my lot size calculator and it's freely available on my website and I'll put a link below this video for you to download it if you haven't already got it. It's been downloaded over 20,000 times. It's an amazingly simple and fantastic trading script that works on the MT4, Meta Trader 4, platform. But more about that later.
So, what I like to do is because I use that script all the time, but what it does is it tells me the exact position size that I need to use on a trade, regardless of my account size, my account denomination, the timeframe of the chart, the type of trade I'm taking, the currency pair. It works it all out for you with simple drag onto the chart into your stop loss and it tells you everything you need to know.
Placing your Stop Loss at a safe level
What you're then doing is putting your stop loss at a level that technically is giving you a high probability chance of staying in the trade and you then need to work out your position size needed for that particular trade from there. It then means that if the trade goes wrong, you know, as in my example, I love half of one percent of my account.
And I get a lot of people coming to me. They say, “Hey Andrew, but you keep talking about ideally you should be looking at trading the longer timeframe charts but how can you trade the longer timeframe charts because I need to put a small stop loss in and that means I'm getting stopped out all the time.” Now, that's clearly a lack of understanding of the market and what you need to be doing because you can't just place a 0.1 position size, let's say, on a daily trade if that's the same position size that you place on a five minute chart trade, as an example. So, therefore, you're position size on a daily chart trade might be, let's say, 0.02 lots or whatever it needs to be according to your account size and the trade that you're taking. So, I hope that helps. It really will make a massive difference to your overall trading success.
As I mentioned, that calculator's been downloaded 20,000 plus times. It's an amazingly simple and easy to use script. There's a free link down below this video.
Your trading will improve by using the calculator
Do download it, have a look at it, use it, and you'll find that your trading will improve just absolutely immensely.
So, once again, this is Andrew Mitchem, owner of The Forex Trading Coach. Have a great weekend. I'll see you this time next week. Bye for now.