As traders, we are always looking for ways to lower our risk. But then for us, it means proportionally reducing profit potential. So, traders often would take higher risk trades when focusing on the profit, or take a too low risk when focusing on the potential risk.
There are two main tools for controlling risk:
1) Lower position size – by decreasing exposure level per trade and taking on less trade volume.
2) Lowering the number of points a trader is willing to lose. Traders can reduce their risk per trade.
When using these tools simultaneously or separately, the chances of risk becomes lowered considerably, and successes will be on the up-side.
Traders’ philosophy is that first and foremost, we are responsible for the assets that we bring from home. We should be respectful and appreciate our assets so much so that we should secure them. As low as our risk is, so is the potential of our profit. There is a common claim that when we trade low risk – we land up taking a small profit. However, when traders are trading at low risk, they can trade over and over again without “traders remorse”. It is a long term profession, it is ongoing, and we can take tight profits from it over and over again.
When we plant the seeds of our account, we should feed it with the correct amount of food and water. Something grows – something crisp, something green ($$$$) and something fruitful. It multiplies. But for that, we need patience and low-risk trading. We should increase our account capital proportionally and responsibly over time too.
The 5%ers is a fund that encourages their traders to take low-risk trades with proportional profits. But there are rewards for this: milestone targets are at 10% net gain, and when trader reach targets, they receive 100% growth, Double your trading account every 10% net gain.
All traders can maintain levels of low-risk trading by using any trading strategy. To lower our risk by cutting the points is less flexible, especially considering if we are trading accurately according to our trading strategy plan! Because, if we see the way the market behaves according to price action, reducing the points that we risk is ignoring the price of the price action. In turn, if we ignore the way that price behaves, well then, we may find ourselves busted many times. So we would not advise changing that.
For changing position size, we can cut as low as necessary and continue trading by the market profile or status that we trade accordingly.
For example, Alan’s trading performance provides him with a 25% drawdown, and The 5%ers require a 4-5% drawdown. All Alan needs to do to match this, is cut his position size by the right proportion to meet 4% or less. If Alan cuts by 6%, he will be less than 4% as well as safe and able to maintain his strategy with no risk and The 5%ers will reward Alan reaches his target.
As traders, we want to avoid being in a trade that makes us feel uncomfortable. When we can’t sleep because we have an open position, or we get upset after a losing trade, we should reduce position size. Humans react more when losing than when winning, this is called risk aversion, so we need to trade very small in order to not get affected by any losing trade.
As you know, money management is a key component when we try to achieve low risk trading and big rewards. There are a lot of techniques to maximize profit while trading low risk.
Learn more about money management.
Leverage may sound very attractive and sexy. Brokers will try to offer you as much leverage as you want claiming that leverage will allow you to grow your account fast.
The truth is, the lower leverage you use, the longer you will keep your account alive. You need to focus on big rewards vs. the risk you take on every trade and good performance.
Learn where to place your stop loss orders and never ever make it bigger. You need to respect your initial analysis in order to keep your losses small. The same goes for taking profits if you have already defined where you will take profits, don’t close your position before you get there.
Big announcements move the market very fast. Spreads widen and slippage occurs when trading in such an environment. This adds uncertainty to any strategy and trader. Check an economic calendar and avoid trading when an announcement is about to get released, instead, trade when you can make decisions based on market structure.
Trading by taking a low risk, will guard our base resource and allow us to trade more comfortably with less stressing over potential and significant losses, It requires more patience for collecting smaller profits, but over time it rewards us with trading confidence and long-lasting trading career. Sometimes it perhaps urges someone to wish there was a way to hold the stick at both ends.
Remember, trading is a career; we are here to stay! Over-speeding is too risky in the trading business. Be a low-risk trader but grow fast.
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