How Much Do You Risk Per Trade In Forex?
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Do you suffer anxiety every time you put on a new trade? Here’s the reason, and the solution
How do you know how much to risk per trade? For that matter, how do you know if you even should be in any particular trade? Simple question, with a simple answer:
Get up and walk away!
The number one rule of negotiation is that you must be able to walk away from any position you adopt. For example, making an offer to buy a car or a house/anything really. If you know there are other buyers waiting in the wings, your offer has to be good enough to make the seller give the deal to you.
The number one rule of negotiation is that you must be able to walk away from any position you adopt…Click To Tweet
If you pitch an offer on the low side and the seller isn’t happy, they are likely to walk away and find another buyer without ever coming back to you with a counteroffer. So any offer that you do make – if what you’re trying to buy is important to you – has to be good.
At the same time, you can’t appear to be desperate to close the deal, or else the seller knows they have you at their mercy. So you figure out a price that stands a good chance of getting the sale without breaking your bank account. And if you miss out on the sale the psychological effect is not devastating, because you have carefully chosen the parameters of your offer beforehand, and are prepared to walk away from the deal if it doesn’t work out.
How does this relate to trading?
When you put a trade on, your mindset must be that this particular trade is irrelevant. You have to feel that way about every trade you put on. Any single trade is simply one of an endless stream that you will execute by way of your trading system, and the outcome of this individual trade is essentially meaningless.
So you figure out an amount that is not going to break your trading account if you lose, and that will result in a satisfactory gain if you win. But the bottom line remains the same whether you are buying a house or putting on a trade: you must be able to walk away from the result if it doesn’t pan out. In fact, you must be able to walk away once you have made the offer, and let fate take its course.
Which brings me to a suggestion for those traders who put on a trade and then immediately begin to feel all kinds of anxiety about the potential outcome. You know the feelings I’m talking about, we’ve all experienced them: your heart starts thumping, you break into a slight sweat, you start to fidget with the things on your desk, you stand up, look out the window, come back, sit down, check the price action again, wonder if you should move your stop or take the trade off now etc etc etc.
Break the obsessive screen watching nature of your trading and free yourself from its anxiety
My suggestion is simple: once you’ve put the trade on, get up and walk away from your trading station. Don’t even bother to switch to another screen in an attempt to divert your attention from the trade; we all know that doesn’t work. Get up, walk away and do something else, anything: go outside, get a drink, talk to your dog etc.
When you mention this to some traders they put up an endless array of reasons why it can’t be done, or that it is a foolish way to trade. But the truth is, if you’ve figured out your parameters for trade entry and trade management ahead of time, there is really nothing to stop you from putting on the trade and then going and doing something else.
You can have some sort of expert advisor trail your stop if you think that’s necessary (personally, I have had abandoned the practice), and of course you should have your stop loss and take profit levels in the market at the time you entered the trade. (If you haven’t made arrangements for your stop loss to be trailed automatically, you can always come back after a suitable interval to check if you should do it now. Just don’t let that become an invitation to sit down and become glued to your screen again.)
So, really, having put on a trade, what else is there to do? More importantly, what else can you do?
The answer is obvious. Once we are in a trade it’s like we’re on a rollercoaster after it’s tipped over that first hill and plunged to the bottom. All you can do is hang on and hope for a good result, based on your calculation of the risks involved ??
If you find yourself sweating over trades once you’ve put them on, I heartily recommend you try this practice. You may not do it all the time, and you may not need to do it forever. But I personally found it of great use at a certain stage in my own trading. It had the effect of a circuit breaker for the anxiety I always felt just after I put on a trade.
And as a closing comment, one that answers the question “How Much Do You Risk per Trade in Forex?”, you risk an amount so small that you CAN walk away from the trade once you have entered it. If you cannot get up and walk away, you are risking too much!
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