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  • *Reminder: Weekly Strategy Webinar tomorrow morning at 8:30AM EST (12:30 GMT) on DailyFX!! https://t.co/lxd5fZnn4H
  • The US Dollar plummeted on the heels of NFP with an outside-weekly reversal risking further May losses. Here are the levels that matter on the $DXY charts. Get your market update from @MBForex here: https://t.co/62p4Gd5E2c https://t.co/S6FwI8x3uK
  • Key levels in forex tend to draw attention to traders in the market. These are psychological prices which tie into the human psyche and way of thinking. Learn about psychological levels here: https://t.co/8A1QhwMVKo https://t.co/ttuTdWFDD5
  • Long $USDCNH was one of my favorite setups for the 2nd quarter btw. I maintain, I like the fundamentals; but the greenback's recent battering needs to relent before this can perform
  • The Dollar's tumble this past week was an abrupt one. We'll see if inflation pressures trigger a shift in risk and rate expectations in the US which could turn the USD's bearings. Meanwhile, a pair I haven't highlighted ... https://t.co/yXl1aoOlIy https://t.co/TWV7tqv2y8
  • $DOGEUSD's daily range post Elon SNL spot is 0.2900. That may not sound like a lot but the current spot rate is ~ 0.5600. The lower wick (reversal from Sunday's low) is a 35% recovery from the low. A speculator's market, not an investor's. https://t.co/hAjg8YO7xA
  • What are some factors driving AUD? Get your free forecast for this quarter here:https://t.co/z85CIVYiuK #DailyFXGuides https://t.co/ZhVyZvw5Ii
  • Last week ended well for $EURUSD, with Friday’s shockingly poor US jobs data giving it a lift, and this week could well see its advance extend if it can break conclusively above resistance at 1.2150. Get your market update from @MartinSEssex here: https://t.co/EFPGUI8Uxc https://t.co/LZA6oXsmJO
  • $GBPUSD broke higher from a Symmetrical Triangle pattern late last week. Meanwhile, $EURGBP remains largely rangebound. Get your market update from @FxWestwater here: https://t.co/hnjGCww0ET https://t.co/0LcIv5Yudg
  • The continuity seen across these volatility cycles is a good thing. Historical precedence offer a blueprint for identifying conditions supportive for a vol-event to occur, and how they may unfold. Deepen your knowledge of historical volatility here: https://t.co/vg7w10la3j https://t.co/0gwSneZjOL
Manage Risk Like a Professional

Manage Risk Like a Professional

Walker England, Forex Trading Instructor

Talking Points

  • Don’t overlook risk management in your trading plan!
  • Always use a positive Risk/Reward ratio.
  • Never risk more that 1% of your account balance on any give trade.

While most traders identify planning an entry as the most important step in their trading strategy, it is important to add as much if not more emphasis on risk management. Successful traders always consider managing risk and before we ever place a trade we should consider the outcome of our order.

To help us better prepare for the upcoming trading year, today we will look at risk management with a focus on risk reward ratios and the 1% rule.

Learn Forex – GBPUSD with Risk/Reward

Manage_Risk_Like_a_Professional_body_Picture_1.png, Manage Risk Like a Professional

Risk Reward Ratios

When it comes to risk, it is actually just important to consider how much we are risking relative to how much potential profit we stand to make. This is what traders refer to as a Risk/Reward ratio. Understanding these ratios can help traders avoid trading’s number one mistake, which is risking more relative to a trades potential gains.

So what does this mean for traders? When measuring your stop loss in pips, you should also use this as a reference when setting your profit targets. Looking at the chart above we see a stop placed on a GBPUSD breakout of 150 pips. This means to setup a 1 to 2 Risk/Reward ratio our limit should be at minimum 300 pips away. While these ratios can be changed for personal preferences, using a 1 to 2 Risk/Reward ratio on every trade means that you only need to be correct 1 out of every 3 trades (33% accurate) to be break even, if not net profitable on your trading account.

Learn Forex – Gold & Dollar Correlation

Manage_Risk_Like_a_Professional_body_Picture_2.png, Manage Risk Like a Professional

The 1% Rule

While no one wants to experience a loss on their account, it is always important to have a plan of action to limit their drawdown. As well as using a stop, traders should also consider the 1% rule. This means that traders should never risk more than 1% of their account balance on any one trading idea. That means using the math above, if you are trading a $10,000 account you should never risk more than $100 on any one positions.

The 1% rule can also be coupled with a favorable risk reward ratio. Using a 1:2 setting, this means if we risk 1% in the event of a loss, at minimum we should look to close our trades out for a 2% profit. This would translate into a $200 profit on a $10,000 account balance.

Manage_Risk_Like_a_Professional_body_Picture_3.png, Manage Risk Like a Professional

To help traders control their risk, programmers at FXCM have created a simple indicator to help decipher how much risk is being assumed on any one particular trade. Once added to Marketscope 2.0, the FXCM Risk Calculator has the ability to help a trader calculate risk based off of trade size and stop levels. This tool is great and to help hold our selves accountable to a predefined strategy that includes proper risk management. To learn more about the FXCM Risk Calculated visit the FXCM App Store.

---Written by Walker England, Trading Instructor

To contact Walker, email instructor@dailyfx.com. Follow me on Twitter @WEnglandFX.

To be added to Walker’s e-mail distribution list, CLICK HERE and enter in your email information.

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