Its always great to hear from our traders and our traders speak to us regularly. One of the most common questions that we get is – How can I pass my evaluation easier?
We have put together this blog series to give you some ideas on what the traders who are passing evaluations are doing.
MAINTAIN A SOLID RISK MANAGEMENT STRATEGY
Do you want to know why many traders attempting to become professional FOREX funded traders with My Forex Funds fail? Poor risk management.
Risk management is more important than EVERYTHING in trading. More important than your strategy, more important than your journal, more important than having good psychology. It is the key to survival and going the distance, the key to milking as much profit out of trading FOREX or Metals or Indices. It is the do or die factor in trading financial markets
What is considered healthy risk management?
There are many theories around what healthy risk management actually is and overall it really does depend on what your overall trading strategy is. However, at My Forex Funds we recommend that you do not have more than 1% risk per trade or trading batch at any one time. This means a loss should never exceed 1% change in equity or balance of your account. We also recommend that your risk to reward ratio is 1:1 or higher with the reward side being higher than your risk. So, if you are risking 1% you should stand to gain 1% or more if the trade turns out positive.
Why 1% and not more?
Again, this is theoretical in nature. Some professional traders do risk more and do so successfully however, statistically at My Forex Funds, the traders who risk 1% or less are more successful over the long term and are more likely to receive their profit split or bonuses when the time comes.
Given that there are rules and risk parameters set by My Forex Funds, risking 1% allows you to stay within your rules, maintain your account in good standing and still have enough risk to reward you handsomely for your success. It keeps you in the program longer and increases your chances of success.
How do I regulate my risk per trade?
When it comes to regulating your risk on any one trade you have a few options.
The first option is to regulate it by position size. By measuring how far your stop loss is and then what lot size will make the value of that stop loss equal to 1% you will be regulating your max loss to 1%.
Alternatively, you can move your stop loss to 1% if you have a fixed lot size to make sure that your risk remains at 1%.
Generally, the first option is the most desirable as it will not affect your trading edge’s profitability.
If you are using multiple trades to create a trade, then the only option is to have an equity stop loss at 1%. You can either manage this yourself or by using an automated trade manager (many are found free online) that closes all trades when equity loss is equal to 1%
But what about my compound gains?
Greed is never good. 1% gets bigger when your equity grows. 1% of 105,000 is more than 1% of 100,000. If you use the 1% rule effectively, you will grow safely and so will your dollar figure gains.
Staying in the game is the most important factor when it comes to longevity when trading at a FOREX prop trading firm.
With the accessibility of capital in the FOREX prop firm revolution, maintaining good risk management practices will allow you to benefit from the markets for longer. So, hunker down, manage your risk, and grow with the My Forex Funds Family! Remember, your success is our business.