Risk Management Strategies in Forex Trading

Draw Down and Maximum Draw Down - What are Major Types of Stock Indices Risks? - Trading With Tools of Stock Indices Risk Management

Stock Indices Trading Risk Management Strategy - The Ultimate Trading Risk Management Guide PDF

In any business, in order to make a profit one must learn how to manage risks. To make profits in indices trading you need to learn about the various stock indices money management strategies discussed on this best learn stock indices trading tutorial website.

When it comes to online stock indices trading, the risks to be managed are potential losses. Using stock indices risk management rules will not only protect your stock indices account but also make you profitable in the long run.

Draw Down - What is Draw Down? - What are Major Types of Stock Indices Risks?

As traders the number one risk in indices trading is known as draw down - this is the amount of money you have lost in your stock indices trading account on a single trade transaction.

If you have $10,000 stock indices trading capital and you make a loss in a single trade transaction of $500, then your stock indices trading draw down is $500 divided by $10,000 which is 5% draw down.

Maximum Draw Down - What is Maximum Draw Down? - What are Major Types of Stock Indices Risks?

This is the total amount of money you have lost in your stock indices trading account before you start making profitable trades. For example if you have $10,000 stock indices trading capital and make 5 consecutive losing trade positions with a total of $1,500 loss before making 10 winning trades with a total of $4,000 profit. Then the stock indices draw down is $1,500 divided by $10,000, which is 15% maximum draw down.

Draw Down is $442.82 (4.4%)

Maximum Draw Down is $1,499.39 (13.56%)

To learn how to generate the above reports using MT4 stock indices platform: Generate Stock Indices Trading Reports on MetaTrader 4 Tutorial - Trading With Tools of Stock Indices Risk Management - Indices Trading Risk Management Calculator

Stock Indices Money Management - Indices Trading Risk Management Strategy - The Ultimate Trading Risk Management Guide PDF

The example illustrated as shown below shows the difference between risking a small percentage of your stock indices capital compared to risking a higher percentage. Good Stock Indices Trading Risk Management Strategy principles requires you as an investor not to risk more than 2% of your total stock indices account equity on any one single stock indices trade.

Stock Indices Percent Risk Method

2% and 10% Stock Indices Money Management Rule - Indices Trading Risk Management Strategy - The Ultimate Trading Risk Management Guide PDF

There is a big difference between risking 2% of your stock indices account equity compared to risking 10% of your equity on a single trade transaction.

If you happened to go through a losing streak and lost only 20 trades in a row, you would have gone from starting stock indices account balance of $50,000 to having only $6,750 left in your stock indices account if you risked 10% on each trade transaction. You would have lost over 87.5% of your stock indices account equity.

However, if you risked only 2% you would have still had $34,055 in your stock indices account which is only a 32% loss of your total stock indices account equity. This is why its best to use the 2% risk management strategy in indices trading.

The difference between risking 2% and 10% on a single trade transaction is that if you risked 2% you would still have $34,055 in your stock indices account after 20 losing trades.

However, if you risked 10% you would only have $32,805 in your stock indices account after only 5 losing trade transactions that is less than what you would have in your stock indices account if you risked only 2% of your stock indices account and lost all 20 trade transactions.

The point is that you want to setup your Stock Indices Trading Risk Management Strategy rules so that when you do have a loss making period, you will still have enough stock indices trading capital to trade next time.

If you lost 87.5% of your stock indices trading capital you would have to make 640% profit to get back to break even.

As compared to if you lost 32% of your stock indices trading capital you would have to make 47% profit to get back to break even. To compare it with the stock indices example 47% is much easier to break even than 640% is.

The trading chart below shows what percentage you would have to make to get back to break even if you were to lose a certain percentage of your stock indices trading capital.

Concept of Break Even - Trading With Tools of Stock Indices Risk Management

Stock Indices Account Equity and Break Even - What are Major Types of Stock Indices Risks? - Trading With Tools of Stock Indices Risk Management

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At 50% stock indices draw down, one would have to earn 100% on their invested stock indices trading capital - a feat accomplished by less than 5% of all traders worldwide - just to break even on a stock indices account with a 50% loss.

At 80% stock indices draw down, one must quadruple their stock indices trading equity just to bring it back to its original equity. This is what is called to "break even" - which means - get back to your original stock indices account balance that you deposited.

The more money you lose, the harder it is to make it back to your original stock indices account size.

This is why as a trader you should do everything you can to PROTECT your stock indices account equity. Do not accept to lose more than 2% of your stock indices account equity on any 1 single stock indices trade.

Stock Indices Money management is about only risking a small percentage of your stock indices trading capital in each trade transaction so that you can survive your losing streaks and avoid a large draw down on your account.

In Stock Indices trading, traders use stock indices stop loss trading orders which are put in order to minimize stock indices losses. Controlling risks in indices trading involves putting a stock indices trading stop loss order after placing an new stock indices trading order.

Effective Stock Indices Risk Management

Effective stock indices trading risk management requires controlling all the risks in trading and a trader should come up with a money management stock indices system and a money management stock indices plan. To be in indices trading or any other business you must make decisions involving some risk. All stock indices trading factors should be analyzed to keep risk to a minimum and use the above stock indices money management tips on this article - Trading With Tools of Stock Indices Risk Management.

Ask yourself? Some Tips

1. Can the risks to your stock indices investing activities be identified, what forms do they take? and are these clearly understood and planned for? All the stock indices risks should be taken care of in your stock indices trading plan.

2. Do you grade the trading risks encountered by you when stock indices trading in a structured way? Do you have a stock indices trading plan? have you read about this learn stock indices trading topic which is thoroughly covered discussed here on this learn stock indices trading website.

3. Do you know the maximum potential trading risk of each exposure for each trade transaction that you place?

4. Are trading decisions made on the basis of reliable and timely market information and based on a stock indices trading strategy or not? Have you read about stock indices trading systems here on this learn stock indices website tutorial lessons.

5. Are the stock indices risks large in relation to the turnover of your invested stock indices trading capital and what impact could they have on your stock indices profits margins and your stock indices account margin requirements?

6. Over what time periods do the trading risks of your stock indices trading activities exist? Do you hold stock indices trading positions long term or short term? what type of stock indices trader are you?

7. Are the exposures in trading a one-off or are they recurring?

8. Do you know enough about the ways in which your stock indices trading risks can be reduced or hedged and what it would cost in terms of profit if you did not include these measures to reduce potential loss, and what impact it would make to any upside of your stock indices profit?

9. Have your stock indices money management rules been adequately formulated, to ensure that you make and keep your stock indices trading profits.

Risk Management Strategies in Forex Trading

Source: https://www.tradeforextrading.com/indices/index.php/what-are-major-types-of-stock-indices-risks

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