Basic concept of risk control

11 December 2017, 07:08
Nitas Raweewonganotai
First of all you have to survive without loss all your fund.Risk control strategy must be first priority before u start trading. I 've summarize that thing for u. 

Step 1 : Set your gain target / period you need.With this formular help u estimate how much capital u need to reach your target.

T = Target per period 
%risk = how many acceptable %risk.
Capital = How much capital u have to invest to reach target
Capital = T / %risk

Ex: You expect 1000usd per week and acceptable %risk = 10%

T = 1000 , %risk = 20% 

So Capital you have to invest = 1000/20% = 5000usd

Or incase you dont have 5000usd you can reverse calculation how much target per period from your capital . Suppose you available to invest 500usd 

T = Capital x %risk 
T = 500 × 20% , T = 100 

That s mean you can earn maximum profit 100usd with take %risk 20%.

Step 2 : Base on your acceptable %risk to calculate maximum Lot size you can take.

P = pip deviation per period (timeframe)
pv = pip value by product.That s mean price movement 1pip how much you can talke profit/loss (Base on 1lot)

Lot = (Capital x %risk)/(p x pv)

Ex : You trade gbp/jpy and ATR(14) timeframe week value indicate 4.00

P = 400 pip 
Pv = i suppose average pip value of all product = 10usd / 1lot

So maximum  lot size you can put = (500x20%)/(400x10) 

Max lot size (bullet) = 0.025 

Think about worst case scenario once you take wrong direction trading you just loss (max lot x pv x p) 0.02x10x400 = 80usd = %risk 80/500 = 16%

This can stability your emotion while trading and you have time to take action like a cut loss before wrong direction movement reach 400pip. May be you cut loss @ 200pip then you can fight again with stable emotion.

Positive scenario your trading on right direction you can earn 80usd = 16% 

This is just the basic trading strategy you have to calculate before trading. Once you have your trading strategy to make profit like a improve entry/exit accuracy you may success on trading life yourself.

And you will never loss all your money during learning your trading. 

Another side of risk is broker you choosing to trade who can secure your fund with reliability regulation.

I would reccommend Peperstone the broker i trade for 5 years 

Pepperstone is licensed and regulated by the Australian Securities and Investment Commission (ASIC) and the Financial Conduct Authority (FCA). We take pride in our strong culture of regulation and compliance. The security of our client funds is of paramount importance. Pepperstone maintains segregated client accounts with National Australia Bank (Australia) and Barclays (UK).

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