What’s a Sensible Amount of Risk to Take per Trade

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#535: What’s a Sensible Amount of Risk to Take per Trade

In this video:

00:26 – Preserving capital.

00:40 – Control your emotions.

01:31 – Have a low and known risk per trade.

02:20 – Most people suggest a 3-5% risk per trade.

03:40 – A +2% gain for the week.

04:38 – Attend my Masterclass and book a call with us.

04:57 –Trade through Blueberry Markets.

What's the sensible amount of risk the issue should take for each trade that you place as a forex trader? Let's talk about that important subject and more right now.

Hey there, traders! Andrew Mitchem here, the owner of the Forex Trading Coach video and podcast number 535.

Preserving capital.

Today I want to talk about risk preserving capital, keeping your drawdowns low. And it all comes back to how much should you place on a trade in order to be a successful trader.

Control your emotions.

You see, for me in trading, there's two things you have to control. One's up here, the head ones in his heart. You have to keep those emotions under control. And you can do that quite easily by controlling your risk, because the fear and the greed always come into the trading as self doubt. But then greed when it comes to making money. Risk management is absolutely crucial. And unfortunate, far too many people don't know that and they don't know how to control that and they don't know how to implement that practically on day by day basis into their trading.

You see, I think there's a lot of people out there that just don't know how much risk they're placing on a trade that is place to trade. And they got I've got a 20 pip stop loss and I'm going to put one lot on it or 0.1 lots. Because that's just what they think they should do. That is not how you trade.

Have a low and known risk per trade.

For me, the best way of trading is to have a known and low risk on every single trade. So you go into a trade and it doesn't matter what the currency pair is or even what the market is. I've taken a trade on Corn this week, you know, and it doesn't matter where it's corn on a weekly chart or the EUR/USD on a four hour chart, it doesn't matter.

Every single trade has the same risk. It's known and it's low. So you have to adjust your position. Size according to a stop loss needs to be in order to calculate that. And it's very easy. And I have a free lot size calculator that does all that for you. But by doing that it means that every single trade that I take has the same risk, and by doing that, I can control my emotions and I can control my drawdowns.

Most people suggest a 3-5% risk per trade.

Now, you have a search out there online, and you'll find that most people will tell you to risk somewhere between about a 3 to 5% risk per trade. I think that's utterly crazy. You know, you have, let's say four trades go wrong and you're instantly 20% down on your account. Now, you need a lot of good trades to go right to make that 20% up just to get to break even. Now, that in itself is not a good way to trade.

For me personally, I risk half of 1% per trade. So my four trades go wrong. I'm now 2% down. When I'm trading on a prop firm, I risk half of that again. So I risk only 0.25% risk per trade. In other words, if four trades go wrong, I'm now 1% down.

That is within the rules, the criteria of a prop firm. It means I can have multiple trades all go wrong in a row, which is incredibly unlikely to happen. But let's say it did before I get anywhere near the maximum drawdown at most prop firms, which is somewhere between so maybe 5% or 6%, that will never happen if you're trading such a low risk per trade.

So it's really important that you preserve capital.