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  1. #1
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    Do you know your risk?

    Hi, traders!

    Many things were discussed about risk, yet I observe very frequently that traders don’t understand risks associated with trading. So, I’ve decided to write this article which is highly recommended for reading for beginner traders.
    First major fallacy about risk sounds like this: «risk for my position is equal to size of possible loss for my positions, therefore it is known and can be easily calculated»

    In reality, risk is not just size of your loss in case you are stopped out from your position, but also possibility (probability) of this event. I was reflecting on this point in article «Frequency and magnitude»

    Second major fallacy about risk sounds like this: «Risk can be eliminated though good analysis». Here, on the forum, you may see a lot of posts confirming this fallacy. In reality. Think about this point: your analysis is based (everybody’s analysis) on incomplete and conflicting information. As most of us are retail traders employing chart analysis, we see only price, we don’t have access to real information about liquidity, large orders, real volume. But marketplace is so huge and uncertain that even largest players can’t move the market in the long term perspective. Bank of Japan, which was intervening the market too often, was only able to create pullback, and rarely a reversal. Direct interventions with large orders were not successful, however they were able to reverse a trend through monetary policy (creating conditions for reversal, but not fighting the market itself).
    Let’s categorize types of risks that trader faces with in trading.

    1. Risk of uncertainty.

    That’s risk number 1 in trading. Traders with several decades of experience say that “We might think we know but in reality we don’t know”. Before making forecasts and claims about the market, don’t forget to add magic words «I think». «I think I know what’s going on», «I think that price will reach this level…» e t.c.
    It’s impossible to eliminate this risk completely. We do some analysis, but every analytical view will help us to shift probability in our favor, not predict. With analysis we increase our odds of success. If you accept that you have highly uncertain situation in each trade, you will never go «all in», employing 100% of your leverage. Actually, 50:1 is also high leverage, statistically you will blow up your account with this leverage. Odds are too low that will be able to trade perfectly and survive. 10:1 is better, in this case will have the chance to survive. That’s statistics.

    2. Risk of counterparty.

    Also, this risk is under your control. Many brokers can cancel your trades, execute them with wrong prices, and eventually refuse to pay you your profit. Forex brokers are not really in the business of matching trades between market participants, they rather act as market makers and carefully hedge their overall position. It’s important to choose brokers with reliable technology of hedging and transparent liquidity providers. Roboforex, for instance, has Currenex as major liquidity provider, using streaming prices from CMS. Know more here

    3. Risk of not knowing your trading instrument.

    You might be surprised that traders often are not completely aware of trading conditions for instruments they trade. For example, traders can open multiple positions, creating huge overall position (though, hedged). Of course, they will be charged for swaps. «Charged for… what?»
    Traders often don’t know what news and economic releases affect prices of assets their trade. If you were day trading on EURUSD previous Thursday (June 5) and was not aware of the fact, that market was expecting claim of interest rate, you could be surprised and not always with unexpected profit (rather with unexpected loss).

    4. Risk of complexity.

    The more complex your trading is, the more hidden risks you have. Let’s say, you employ 2-3 trading instruments with different trading systems on each of them, in this case complexity of your trading is increased and you might expose yourself to nonlinear cascading effects.
    Experienced traders do not optimize parameters of their indicators. Why? Is seem to be very obvious and useful thing to optimize your system. But in reality if you optimize your system so that your system generates income much greater than average and underperforms in other markets at the same time, you start accepting additional risks that market conditions (volatility, market structure) will change and bring your more losses than you were expecting.

    5. Risk of not knowing your risk.

    And last but not least – you might even be unaware that you have some risks. Your internet connection maybe unstable, your chart maybe inaccurate, your trading software may crash, your stop-loss maybe not executed (though you thought that it was) and other and other.
    Like Nassim Taleb had said – «we prepare to fight against terrorism, but can be harmed from diabetes»

    Good luck and accept your risks!

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  2. #21
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    Quote Originally Posted by nusrat View Post
    every trader need to be aware of their risk.i think proper money management is important for avoid huge losses.I am very careful to avoid losses.i am trade two or one and use 10% for loss.we should be aware of single trade.Forex is the risky business so every trader should be knows good money management.
    Very much true, there is need for each and every trader in the forex market to be aware of the ideal money management process such that they can be making some good gains in the forex trading business and be able to come to the profit edge. Thus, traders should always make sure that they can be able to risk their money with justified reasoning only. If we are unable to justify our trades then there is no use playing in the forex market taking up unnecessary risk.

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  3. #22
    Registered user PetraFX's Avatar
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    I am aware that forex trading is a good way for making money, but also a way for losing money. profit and risk in forex trading are the reality. When I open my order, I make some analysis before, included hw much risk I must take. I am sure that by using the low risk in my trading, I can be sustain but hence, I will have the great traumatic, even give up from forex trading.

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  4. #23
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    This is indeed a very good information risk is an very important factor of our trading I think its our responsibility to use proper risk in our trades high amount of risk could lead to high loss so we should try to use less risk in each trade and it will be better if we will avoid our greed at the time of trading

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  5. #24
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    Risk in this business is something we need to take in order to make a good trading decision. If we can't even take the risk, then we will always hesistate in making decisions in this business and most of the time we will only lost a lot of our investments in the end. The traders that can accept risk and enter the market will show different outcome.

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  6. #25
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    This is very easy thing to know in this trading. You have three basic things that will help you to calculate the risk you are taking in the market per time. They are; Equity of the trader, Stop loss amount in pips and Take profits of the trader in terms of the reward.

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  7. #26
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    in forex market most of the time it is seen that the trader are trading with out proper money management and then most of the time they are losing their all but i think that if one can learn about the market then he can make profit more, so learn about the money management system and then earn as much as you want, Never try to hunts pips.

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  8. #27
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    I guess I know the risk I am taking I the market, if I want to do the trading, I look at the way of working that will help my reward to be higher that the risk I am taking. The risk is really the amount of money you are willing to risk for the said profits you are proposing to get in the market at that time of risking.

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  9. #28
    Rookie mohabbat's Avatar
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    Quote Originally Posted by gmmasud88 View Post
    in forex market most of the time it is seen that the trader are trading with out proper money management and then most of the time they are losing their all but i think that if one can learn about the market then he can make profit more, so learn about the money management system and then earn as much as you want, Never try to hunts pips.
    Yes gmmasud88, I think success in FX market so hard, because there is many side we need to focus, we can not depend on any one ! for example if you follow only to fundamental then you will not be success because there is technical calculation so effective and powerful ! so in my view only one way for success and it's observation.

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    Don't loss you hope.

  10. #29
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    The single fact that you trade in the forex markets suggests that you are exposing yourself to trading risks, that is why it will be more dangerous when traders can not calculate his risks so as to plan towards. The main thing thing that makes the successful traders success is mainly in their risk management.

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  11. #30
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    Indeed i'm sure the risk in the trading my partner and i analyze this according to the trading approach as well as the best threat managing. As being a beneficial investor i think it's really important that we must reduce the threat as well as raise more conviction on the industry achievement.

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