Why I Trade with Low Risk Per Trade
#392: Why I Trade with Low Risk Per Trade
In this video:
00:29 – Why do you keep your risk per trade low?
01:03 – 2 things you must control
03:05 – This completely amazes me
04:08 – We also have high R:R trades
05:33 – Understanding the market and understanding yourself
06:10 – Our 2020 Black Friday 12 Hour Sale
I get asked all the time, why I trade with such low risk. Let me explain more right now.
Hey traders, it’s Andrew Mitchem here at the Forex Trading Coach with video and podcast number 392.
Why do you keep your risk per trade low?
The question I get asked quite often is, “Andrew look, if you’ve been trading for so long and you know what you’re doing, you know how to trade, why is it that you constantly promote and suggest other people trade with such low risk per trade?” And it’s quite an interesting question because people think that, you can just go and risk crazy amounts and make exceptional returns. For me as a full-time trader, that’s been doing this for close on 17 years, I can tell you that yes, you can make exceptional returns from the Forex market, but you can do that without risking crazy amounts.
2 things you must control
Now, for me, there’s two things as a trader, that you have to control. One is your head. The other is your heart. If you can control those two emotions, then you are a long way down the track to helping yourself becoming a good trader. And for me, I’ve never really, had to worry about my trading because what I know I’ve got a strategy that works and I’m very comfortable trading it, and I know how to trade it. It’s been proven for such a long time. But also because I trade with such low risk per trade, I can place trades. I’ve got trades on behind me right now. I can go to sleep. I can go away for the day. I can do all sorts of things without stressing about trades, because I know that every single trade that I place has a very low and a controlled stop loss. And I’m not talking about putting a stop loss at 10 pips or 50 pips or a hundred pips or anything like that.
I’m talking about if my trade gets stopped at and I place, my stop loss at a reason, not just at a number. In other words, I’m not placing it at 10 pips or 50 pips. I’m placing it at a level on the charts for a reason. Well, I know that that’s say, got a good chance of not being stopped at, but let’s say it does. And of course we all have trades that get stopped at. If it does, I know what my risk is as a percentage of my total account. And I can live with that because I know that it’s not going to damage me. I know I can get up and trade again tomorrow. And that’s the problem that I see so many traders having, and they have a losing streak and all of a sudden it’s like, “Oh my goodness.” It’s the head and the heart, again. “I can’t trade.” Or. “I’m scared to trade.” Or they see a really good setup and they go and take less risk than they normally would because they’ve had a string of losing trades.
And of course that becomes the trade that ends up winning. And they only make a small amount rather than what they should be making. So you see the issue.
This completely amazes me
Now, it still blows me away that I see they’re just all over the internet, people saying, you should be risking 2%, 5% per trade. 5% per trade. I can have 10 trades in a row, go wrong and lose 5%, which hardly ever happens by the way. But I could have 10 trades in a row go wrong and I lose 5% of my account. These guys online are suggesting that you risk 5% per trade. You imagine what happens when you end up with three or four or five losing trades in a row. How are you feeling? Not only that is, what have you got to do as a percentage gain to make back that loss that you’ve just created? It starts messing with your head, with your heart. It comes back to those two things.
So I can tell you that someone that’s been in this market for such a long time, do not ever underestimate the power of low risk per trade.
We also have high R:R trades
Now, what makes this also work for us is that the vast majority of my trades have very high reward to risk gains. So we could be talking two to one, three to one, four to one. I had a guy the other day on the Webinar that made a 6% gain on one trade. But most of my personal trades are around a two or three to one reward to risk. So a three to one means I’m risking half percent of my account on that trade. If it hits the profit target, I make 1.5% gain. Now you imagine doing that on a few trades in a row. That starts to really compound and become quite exceptional gains.
And so for me, coming back to that low risk is important. You have to have high reward to risk. I’ve seen traders out there that have a 90% winning system, but still lose money because they have lots of small gains, one big loss. I’ve seen traders out there talking in pips, like most people unfortunately still do. And I’ve seen traders that have shown me a record of their gains and losses, and they have actually lost pips. But when I’ve shown them what they would have done, if they had worked on a percentage of their account on each of those trades, they actually made money whilst they were losing pips. Try and work that one out. It happens so often, it’s unbelievable.
Understanding the market and understanding yourself
So, comes back to understanding the market, understanding yourself, removing emotions as best as you can, because the whole psychology around trading, believe it or not, and if you’ve been trading live you’ll know it’s true, is a big hurdle to overcome. Like if you’re just starting, or you’re trading on demo, you probably don’t understand the importance of it just yet. But take it from me, that someone that’s been through the system, through the journey, controlled low risk, high reward to risk trades. Do that, you’re on the big step to becoming a good trader.
Our 2020 Black Friday 12 Hour Sale
Last thing, don’t forget, at the end of the month, we are holding a black Friday sale, Friday, the 27th of November, and maybe Thursday evening or afternoon, if you’re in the US or Europe, when it starts. It’s a 12 hour dime sale. Email me, [email protected] If you’d like to know more information about that black Friday sale. It’s going to be an exceptional sale. I’m going to be giving a ridiculous, ridiculous discount on the course. 12 hour sale. Take advantage of it. See you next week. Bye for now.
Episode Title: #392: Why I Trade with Low Risk Per Trade