Many traders asking me always how many pips I can make weekly, monthly or what is my success rate. It’s all wrong questions. True is that no one is able to be profitable in 70% trades in the long term run. (ok, the scammers they can claim even 99%) but if you ask for live results they will show you some phone screen shots, which is really not prove about long term profitability.
Those traders who can make 60% success rate and add the risk correct risk management they are trading superstars and very profitable.
So what is the correct risk management?
Using the small position compared to the trading account? No its definitely not it. Using small position, will protect you from burning account but you will not make any profit.
Let me show you what I mean by correct risk management on 2 scenarios and 5 trades examples on the 10K account.
Per my view the correct risk management means mainly pre-calculate the position size for each trade and thinking in % and as well adding same value to the each trade.
First of all It will safe my nerves when trading and protect me from emotional trading like closing the position early in profit or the worst case closing position because of fear of unknown loss.
I understand that here are some traders which always use same distance in pips for stop loss and same profit target. Everything is possible and if it works for you than perfect and I suggest continue doing it.
But if we want to protect our Stop limits from being stop hunted we must use the market structure to hide SL behind swings or when we targeting we always looking to target some structure level.
So this will give different RISK X REWARD ratios for each trade. Yes it would be perfect to have always trade minimum 1:3, but reality is not as its in the books.
So we have various risk rewards as on the 5 trades examples which I picked here with different risk to rewards, pips distances etc..
Now I want show you what difference it will makes when we have just bad period and how the risk management can safe us.
So lets assume that from this 5 trades will be 4 losers and 1 winner. Same trades
1) using always same lot
2)with calculated risk
EXAMPLE 1 – USING ALWAYS SAME POSITION SIZE 10K ACCOUNT
– this will not work because every trade will have different risk and losses will not be covered.
– psychological affect will destroy you
– total result after is -273 pips
– 2.7% and – $273
Now lets look at the totally same trades with pre calculated risk for each trade 1.5%
EXAMPLE 2 – CALCULATED RISK FOR EACH TRADET
– as we can see we are using for each trade different lot size so we risk 1.5% for each trade.
– if you loosing 4 trades in row and you know your loss risk in advance psychologically you will be ok.
– we again ended -273 pips
BUT +$337 IN MONEY
AND + 3.37% PROFIT
So we have lost 4 trades and 1 winner.
Overall we are – 273 pips
Success rate? Only 20%
But still in profit when we using correct risk management. No imagine if your success rate is more than 50% with this risk management.
I can guarantee you. That you will be very profitable. I’m not only saying that but I can prove it as well with the live results.
Risk Management is ALL !!
For the calculating the correct position size we can use many free position size calculators available on the internet for example this one.
How to use the calculator correctly is described in THIS VIDEO
Position Size Calculator widget is provided by DailyForex.com – Forex Reviews and News