If there’s one thing all successful traders have in common it's ensuring they take a structured approach to managing risk as part of their trading plan.
In the case of managing risk, correct position sizing is critical.
This means achieving the correct exposure on each position relative to the size of your account and taking the time to understand how volatility and the recent moves in price affect how much risk you’re prepared to take.
It also includes assessing the event risk to better understand the potential market-moving catalysts that could affect price and your open trades.
If you’re concerned about a potentially adverse move based on an announcement that’s completely out of your control, we always suggest you look to reduce your exposure into that event.
The primary job of a trader
As traders, our job is to grow the capital in our trading accounts.
All successful traders try to do this in a disciplined manner to manage risk on every trade they make, good or bad.
For example, if your trade didn't go the way you wanted it to, it's important to try and learn how to identify where you went wrong and cut your losses early the next time it happens.
Equally, risk management can teach you how to master the art of letting your winners run without changing your strategy, something we believe is an equal challenge.
Anticipating upcoming event risk and interpreting how important the market thinks the news could be is important, but then so is assessing which markets will be most sensitive to this news.
Understanding news events can take time to get right and does require time to research so one way to get a better understanding of what's important and what you need to look out for when considering your risk management plan is to sign up for relevant and timely expert guides.
Our Daily Fix is a great place to start for a mix of price action and high impact economic events, as well as our weekly newsletter, which contains expert insights to help you plan your week ahead.
Some traders look to reduce risk by using an expert advisor (EA) or focusing on their own technical studies to make trading decisions. While this can help automate the process and, in the case of EAs, reduce psychological interference in decision-making, your role as a trader seeking profitable outcomes is the same: manage your risk at all times when holding a position and when the facts change, you change.
Other tools to manage your risk
Before you start your trading journey, you can:
- Use a stop-loss to define your risk exposure. A stop-loss is a great tool to manage risk and should be seen as an essential part of a trading process. A great trader won’t necessarily judge the trade by profit or loss, but by how they went about following their set process from start to finish
- Find out more about calculating position sizing. You'll be able to do this using the Calculators tool in your secure client area.
- Practise on a demo account with virtual funds in real market conditions.
Once you feel confident in your ability to assess and manage risk, you'll feel more confident in your trading and will be in a better position to achieve more consistent capital growth in your Pepperstone trading account.