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Equity and Risk Management - The #1 Reason my Forex Traders Fail

Started by JoshTaylor, Oct 16, 2012, 11:33 pm

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JoshTaylor

Hey everyone, I wanted to share some info on an article that I wrote that I will make a huge impact on your Forex trading. I have been trading for 7 years, full-time for 5. I have dealt with the trained countless traders in that time frame. And what I have found is that the #1 reason why most traders loss money in FX...is EQUITY AND RISK MANAGEMENT.

The reality is that unless you remove the mindset of "gambling" in Forex and understand Forex for what it is...a business of probabilities you will start seeing better results in your trading. And once you see that, that it is about numbers and consistency, you will see the results improve.

So, part of setting up the "probabilities" to sway in your favor is to follow a sound and SOLID equity and risk management plan. That means you control the exact amount of risk on each trade, you do not move your stop away from your open (but we move our stop closer to and beyond our open price to put our trade in the money and remove risk from the trade), and you stick to your equity management plan.

I am not going to post everything here because I already have a long article and several videos on the subject. But you can check them out here:

http://tradeadvisorpro.com/forex-articles/developing-risk-management-plan/

I am going to follow this post. If anyone has any questions please post questions, screenshots, etc and I will be glad to help.

Happy Trading

Josh Taylor



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    KieranW

    Josh, that is a really solid article, loads of golden nuggets. I love the way you explains the risk/reward ratios.


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      dezzy

      Very good article, this should be read more often by everyone. Great advice and I've definitely learned something which I can apply for the future :)

      Thanks!

      Cheers,
      Desmond


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        equityfx

        Gamble methods  make every one forget about what must to do as their plan before , the fatal mistakes the trader will do trade not responsible of the equity of account balance and don't care of risk management applicable


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          999cjb

          This is a very interesting and sensible article. I totally agree with the statement about being able to make 5% to 12% a month from Forex and that trying to exceed this target can be suicidal for your account.

          Of course money management is equally vital when you trade using EAs. I have seen many EA backtests (and produced some) where the EA runs at a fixed lot size perhaps doubling the account in a year. But as the account grows, the risk per trade decreases and this can be very misleading as a loss or large drawdown after 4 years backtesting would have blown the account if the trade or trades were running on the original investment.

          Backtesting an EA with money management allows lot sizes to rise with the account balance, maintaining the same level of risk throughout so these backtests are more valid.

          I also read the comments below the post and of course there is the usual remark by some "expert" saying all EAs are rubbish which is patently untrue. When you use the right EA at the right risk level it imposes automatic money management, discipline and patience which are all vital when trading.

          Using EAs it is also possible to run at higher then normal risk levels if the trader is prepared to input additional funds if needed and it is possible for these funds to be applied quickly to the account. It is also viable to leave trades open overnight while you sleep which I would have thought is dangerous in manual trading.

          Another comment mentioned pending orders. I am a believer in retaining as much information as possible in the hands of the trader and letting the broker see as little information as possible. If you are placing pending orders and some also place take profit and stop loss values you are telling the broker exactly what you intend to do. If all brokers could be relied on to be totally honest in all respects there is no problem in doing this. I leave it up to you to decide if this is the case.


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            fxman

            To me also risk management is the main problem for which most of traders fail to  grow their account or even blow out their account. Human mind is too much reactive and  it takes time for traders to convert their mind from reactive to proactive upon losses. So  almost all traders losses money  at the beginning .Some of them able to change them later and become successful. 

            It's not only that to make quick money, people take high risk, also being reactive after losses people can take high risk with a tendency to beat the market/recover the losses but get bitten rather and most of those happens due to lack of experiences ,  patience, skill etc. Accepting losses/loss management is a skill that should be learned from the beginning.
             




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              mosiskv

              Hey everyone, I wanted to share some info on an article that I wrote that I will make a huge impact on your Forex trading. I have been trading for 7 years, full-time for 5. I have dealt with the trained countless traders in that time frame. And what I have found is that the #1 reason why most traders loss money in FX...is EQUITY AND RISK MANAGEMENT.

              The reality is that unless you remove the mindset of "gambling" in Forex and understand Forex for what it is...a business of probabilities you will start seeing better results in your trading. And once you see that, that it is about numbers and consistency, you will see the results improve.

              So, part of setting up the "probabilities" to sway in your favor is to follow a sound and SOLID equity and risk management plan. That means you control the exact amount of risk on each trade, you do not move your stop away from your open (but we move our stop closer to and beyond our open price to put our trade in the money and remove risk from the trade), and you stick to your equity management plan.

              I am not going to post everything here because I already have a long article and several videos on the subject. But you can check them out here:

              http://tradeadvisorpro.com/forex-articles/developing-risk-management-plan/

              I am going to follow this post. If anyone has any questions please post questions, screenshots, etc and I will be glad to help.

              Happy Trading

              Josh Taylor


              Thanks for the artcile - Very good info!
                Got a Signal? - Trade it!


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                pearcem1210

                I agree completely.  I "quit" trading in 2008 because I did not incorporate Risk Management into my trading strategy.  I lost thousands.  When I started trading again in 2010 I took on a new mindset with more feasible goals in mind and have had quite a bit of success.

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