Why Your Stop Comes Before Your Entry
New traders usually pick an entry first and a stop second — often after they're already in and hoping. Flip it.
Decide where you're wrong before you buy. The price where the setup breaks is your stop. Everything else is built from it.
Why it matters
• Your stop sets your risk . Your risk sets your position size. If you don't know the stop, you can't size the trade — you're just guessing.
• A stop chosen before entry is logical . A stop chosen after entry is emotional.
A simple routine
Find the level where the setup fails — below a swing low, under a key moving average. Your call, but pick it first.
That's your stop.
Size the trade so that if the stop hits, you lose only a small, fixed slice of your account.
Now enter — calm, because the downside is already defined.
The trade you can't define a stop for is a trade you probably shouldn't take.
Here is the formula
Risk dollars = Account × Risk %
$10,000 × 1% = $100. That's the most this trade is allowed to cost you. It's fixed before you look at anything else.
Shares = Risk dollars ÷ (Entry − Stop)
The stop distance is the divisor — that's why the stop has to exist before the share count can.
Here is an example of how it works
Entry: $50.00
Stop: $48.00 (risk per share = $2.00)
Shares: $100 ÷ $2.00 = 50 shares
Position size: 50 × $50 = $2,500 (25% of the account — fine, because only $100 is actually at risk)
Take profit at 2R: $50 + (2 × $2.00) = $54.00 → win = $200, loss = $100
The Point of it all — same entry, different stop
Stop Risk/share Shares Position 2R target
$48.00 $2.00 50 $2,500 $54.00
$47.00 $3.00 33 $1,650 $56.00
$45.00 $5.00 20 $1,000 $60.00
Every row loses exactly $100 if the stop hits.
The wider stop doesn't mean more risk — it means fewer shares.
That's the whole argument for setting the stop first: the chart tells you where the stop belongs (below support, below the swing low), and the share count falls out of the arithmetic.
Traders who pick the share count first are letting position size dictate the stop, which is backwards — they end up with a stop placed where the loss is tolerable instead of where the trade is wrong.
Always round shares down . $100 ÷ $3.00 = 33.3 → take 33, never 34.
Rounding up quietly pushes risk past 1%.
Risk-per-share ignores gaps .
A stop is an exit order, not a guarantee — a gap through your stop loses more than the planned $100
Educational only — not financial advice.
Education
Forex Basics: 2. Understanding Orders and Market BehaviorBefore starting, make sure to check out Part 1, where we covered the basics of Forex, including currency pairs, pips, spreads, lot sizes, and leverage.
Part 1:Forex Basics Every Beginner Must Know!
1. Types of Orders?
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In Forex, an order is simply an instruction given to your broker to buy or sell a currency pair. Some orders are executed immediately, while others are executed only when the price reaches a specific level.
Orders are mainly divided into two categories:
Market Orders
Pending Orders
1. Market Order: A Market Order means buying or selling immediately at the current market price. As soon as you place the order, your trade is executed instantly. Market orders are used when you want to enter the market right away.
A. Buy Market Order: When you place a Buy Market Order, you expect the price to rise.
B. Sell Market Order: When you place a Sell Market Order, you expect the price to fall.
2. Pending Orders: Sometimes traders do not want to enter the market immediately. Instead, they want the trade to open automatically when the price reaches a certain level. These orders are called Pending Orders.
There are four types of pending orders:
Buy Limit
Sell Limit
Buy Stop
Sell Stop
1. Buy Limit Order
———————
A Buy Limit Order is placed below the current market price. It is used when you expect the price to fall first and then move upward.
Example
Suppose EUR/USD is currently trading at 1.1000.
You believe the price may drop to 1.0950 and then continue rising.
Instead of buying immediately, you place a Buy Limit Order at 1.0950.
If the price falls to 1.0950, the trade opens automatically.
If the market then rises to 1.1050, you make a profit.
In simple words:
Current Price = 1.1000
Buy Limit = 1.0950
Expectation:
Price goes down first and then moves up.
2. Sell Limit Order
————————
A Sell Limit Order is placed above the current market price. It is used when you expect the price to rise first and then move downward.
Example
Suppose EUR/USD is trading at 1.1000.
You believe the price may rise to 1.1050 before falling.
Instead of selling immediately, you place a Sell Limit Order at 1.1050.
If the price reaches 1.1050, the trade opens automatically.
If the market then falls to 1.1000, you make a profit.
In simple words:
Current Price = 1.1000
Sell Limit = 1.1050
Expectation:
Price goes up first, then down.
3. Buy Stop Order
————————
A Buy Stop Order is placed above the current market price.
It is used when you expect the price to continue rising after breaking a certain level.
Example:
Suppose EUR/USD is trading at 1.1000.
You believe that if the price breaks above 1.1050, it will continue moving upward.
You place a Buy Stop Order at 1.1050.
If the price reaches 1.1050, your trade opens automatically.
If the market later rises to 1.1100, you make a profit.
In simple words:
Current Price = 1.1000
Buy Stop = 1.1050
Expectation:
Price goes up and continues moving higher.
4. Sell Stop Order:
————————
A Sell Stop Order is placed below the current market price.
It is used when you expect the price to continue falling after breaking a certain level.
Example:
Suppose EUR/USD is trading at 1.1000.
You believe that if the price breaks below 1.0950, it will continue moving downward.
You place a Sell Stop Order at 1.0950.
If the price reaches 1.0950, your trade opens automatically.
If the market later falls to 1.0900, you make a profit.
In simple words:
Current Price = 1.1000
Sell Stop = 1.0950
Expectation:
Price goes down and continues moving lower.
Note:
A. Limit Orders expect a reversal.
B. Stop Orders expect a breakout.
2. Bid Price and Ask Price?
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When you look at a Forex pair, you will always see two prices.
Bid Price → The price at which you can sell.
Ask Price → The price at which you can buy.
The difference between these two prices is called the Spread.
Example:
Bid Price = 1.1000
Ask Price = 1.1002
Spread = 2 pips
This means every trade starts with a small cost, which is the spread.
3. Trading Sessions:
-------------------
The Forex market operates 24 hours a day because different countries open and close at different times.
There are four major trading sessions:
Sydney Session
Tokyo Session
London Session
New York Session
However, each session behaves differently. Some sessions are calm, while others are highly volatile.
Understanding these sessions helps traders know when the market is likely to move the most.
1. Sydney Session:
The Sydney Session is the first session to open after the weekend.
Generally, this session is quiet and has lower volatility because fewer traders are active.
Price movements are usually smaller compared to other sessions.
Because of this, many traders use this time to observe the market rather than look for large moves.
2. Tokyo Session (Asian Session)
The Tokyo Session is also known as the Asian Session.
Compared to the Sydney Session, trading activity increases, but volatility is still relatively low.
Currency pairs involving the Japanese Yen (JPY), Australian Dollar (AUD), and New Zealand Dollar (NZD) are usually more active during this period.
Example: USD/JPY, EUR/JPY, AUD/USD, NZD/USD
During this session, prices often move within a range and trends are generally slower.
3. London Session
The London Session is considered one of the most important sessions in Forex.
This session has very high trading volume because many banks, institutions, and traders participate in the market.
As a result, price movements become larger and volatility increases.
Many strong trends begin during the London Session.
Currency pairs such as:
EUR/USD, GBP/USD, EUR/GBP, USD/CHF
often experience significant movement during this period.
Because of the high volatility, this session is preferred by many day traders and scalpers.
4. New York Session
The New York Session is another highly active session. Major economic news releases from the United States are often announced during this time. As a result, volatility can increase rapidly.
Currency pairs containing the US Dollar usually experience strong price movements.
Examples: EUR/USD, GBP/USD, USD/CAD, USD/JPY
The first half of the New York Session is generally more active than the second half.
As the session approaches closing time, market activity gradually decreases.
Important Topic: London and New York Overlap
When the London Session and New York Session are open at the same time, trading activity reaches its peak.
This period is considered one of the busiest times in the Forex market.
During this overlap:
Trading volume is highest.
Volatility increases.
Spreads are usually lower.
Strong price movements are common.
Because of these reasons, many traders prefer trading during this period.
Session Comparison:
4. Margin Call
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A Margin Call happens when the funds available in your trading account become too low to support your open positions. In simple words, it is a warning from your broker that your losses are increasing and your account does not have enough money to maintain the trades. This usually happens when the market moves against your position and your account equity falls below a certain level required by the broker.
If losses continue to increase, the broker may automatically close some or all of your open trades to prevent your account balance from going negative. This process is known as a Stop Out.
For example, suppose you have $100 in your account and open a large position using leverage. If the market moves against you and your losses become too large, your available margin will decrease. Once it reaches the broker's minimum requirement, a Margin Call occurs, and if the losses continue, the broker may close your trades automatically to protect both you and the broker from further losses.
5. Stop Loss and Take Profit
---------------------------------
Whenever traders open a trade, they can set two important price levels:
1. Stop Loss (SL)
2. Take Profit (TP)
These levels help traders manage risk and profits automatically.
1. Stop Loss:
A Stop Loss is a price level where your trade automatically closes to limit your losses.
In simple words, it acts as a safety net that prevents small losses from becoming very large losses.
Example:
Suppose you buy EUR/USD at 1.1000.
You set your Stop Loss at 1.0950.
If the market falls to 1.0950, your trade will close automatically.
Loss = 50 pips.
2. Take Profit:
A Take Profit is a price level where your trade automatically closes after reaching your desired profit.
Example:
Suppose you buy EUR/USD at 1.1000.
You set your Take Profit at 1.1100.
If the price rises to 1.1100, your trade closes automatically.
Profit = 100 pips.
In simple words:
Stop Loss protects your capital.
Take Profit locks in your profits.
6. Profit and Loss Calculation
----------------------------------
Profit and loss in Forex mainly depend on three things:
Lot size.
Number of pips moved.
Direction of your trade.
Example:
Suppose you buy EUR/USD.
Lot Size = 0.10 lot.
Price moves from 1.1000 to 1.1020.
Difference = 20 pips.
Profit = $20.
Similarly, if the market moves down by 20 pips,
Loss = $20.
The larger the lot size, the larger the profit and loss.
7. Why Beginners Should Use a Demo Account
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Before risking real money, many traders start with a Demo Account.
A Demo Account allows you to trade using virtual money while experiencing real market conditions.
This helps beginners understand:
How to place orders.
How leverage works.
How profits and losses change.
How to manage risk.
Because no real money is involved, traders can learn without fear of losing capital. However, emotions are different when trading with real money. Therefore, many traders move from a Demo Account to a Live Account only after gaining enough experience.
Holy Grail Note: Learning Forex is not only about making profits. Understanding risk management and protecting your capital is equally important. Many beginners focus only on profits, but experienced traders focus first on controlling losses.
In Part 3, we will move from how trades work to how traders analyze the market using candlesticks, timeframes, trends, support and resistance, and basic market structure.
On @TradingView By @BrightRally_Research Hidden Risk: How to Uncover and Control Before You Click 'Buy'As seasoned traders, we understand that risk management isn't just a beginner's concept; it's the bedrock of sustainable profitability. We've moved beyond the rudimentary rules and are fluent in position sizing and stop-loss orders. But in the dynamic landscape of TradingView, where opportunities arise and vanish in the blink of an eye, even intermediate traders can fall prey to impulsive decisions that erode our hard-earned capital.
The solution? Systematizing our risk assessment with a pre-trade risk profile. It isn't about reinventing the wheel but refining our approach to ensure that every trade aligns with our overall strategy and risk tolerance. It gives us an edge by keeping us disciplined.
The Pitfalls of Complacency
It's easy to become complacent when we've got a few winning trades under our belt. We start to feel invincible precisely when we're most vulnerable. We might skip steps, loosen our stop-losses, or increase our position sizes beyond our predefined limits. We are often driven by emotions rather than logic, and it's a slippery slope.
Remember, even a well-defined risk management plan is useless if it's not consistently applied. Each trade carries unique risks influenced by factors beyond our standard calculations.
Creating a Pre-Trade Risk Profile: A Refresher
Before hitting that buy or sell button, click on TradingView to create a simple risk profile for the specific trade. Ask yourself a series of critical questions:
1. The Asset's Volatility:
What's the current Average True Range (ATR)? How does it compare to the asset's historical ATR? Higher volatility demands wider stop-losses and potentially smaller position sizes.
Are there any upcoming news events or economic releases that could impact volatility? Factor these in, as they can significantly alter the risk landscape. Be aware of, for instance, earning reports.
2. The Trade Setup:
What's your entry point, and why? Is it based on an explicit technical signal, or are you chasing a move?
Where's your stop-loss, and what is your rationale behind it? Is it placed below a key support level or based on a multiple of the ATR?
What's your target price, and is it realistically achievable given the current market conditions? Avoid setting overly ambitious targets that expose you to unnecessary risk.
3. The Correlation Factor:
How does this asset correlate with other positions in your portfolio? Are you inadvertently increasing your exposure to a specific sector or market trend?
Could a single event trigger losses across multiple positions? Diversification is key, but it requires careful consideration of correlations.
4. The Time Factor:
What's your intended holding period for this trade? The longer the timeframe, the greater the potential for unforeseen events to impact your position.
Does your stop-loss need to be adjusted based on the timeframe? A wider stop-loss than a day trade might be necessary for a swing trade.
5. The "Gut Check":
Are you comfortable with the potential loss on this trade? If the answer is no, it's a red flag. Either reduce your position size or reconsider the trade altogether.
Are you trading based on a well-defined plan, or are emotions driving your decision? Be honest with yourself.
From Profile to Action: Implementing Your Assessment
Once you've answered these questions, you have a clearer picture of the trade's risk profile. Use this information to:
Fine-tune your position size: Ensure it aligns with your pre-determined risk per trade (e.g., 1-2% of your capital).
Set your stop-loss: Place it strategically based on the asset's volatility and your chosen support/resistance levels.
Determine your risk/reward ratio: Is the potential profit worth your risk? Aim for at least a 1:2 or 1:3 risk/reward ratio.
Bonus Tip: Develop Your Risk Score System
Consider creating a simple risk score system to streamline your risk assessment further. Assign points to different risk factors based on their potential impact.
For example, here is the Trade Impact Estimator (T.I.E):
Volatility: Low Volatility (Below Average ATR): +1 point
Average Volatility (Within Average ATR): 0 points
High Volatility (Above Average ATR): -1 point
News Events: Major News Event Scheduled: -2 points
Minor News Event: -1 point
No News Event: +1 Point
Correlation: High Correlation with Existing Positions: -1 point
Low Correlation: +1 point
Timeframe: Day Trade: +1 point
Swing Trade: 0 points
Long-Term Trade: -1 point
Trade setup: Good Risk/reward ratio: +1 point
Neutral Risk/Reward ratio: 0 points
Bad Risk/Reward ratio: -2 points
Set Thresholds:
Total Score of +3 or higher: Potentially a lower-risk trade, consider proceeding as planned.
Total Score between 0 and +2: Proceed cautiously; consider reducing position size.
Total Score of -1 or lower: Re-evaluate the trade, widen your stop-loss, significantly reduce position size, or avoid the trade altogether.
Disclaimer: This is a simplified example. You can customize your risk score system to include additional factors and adjust the point values based on your own trading style and risk tolerance. You can also assign more points to factors that have historically impacted your trading results. It's crucial to backtest and refine your system over time.
The Takeaway
Mastering risk management is a continuous journey. By incorporating a pre-trade risk profile into our routine, we elevate our trading from reactive to proactive. We transform ourselves from gamblers to calculated risk-takers. On TradingView, where information flows ceaselessly, this disciplined approach is not just an advantage; it's a necessity. So, refine your process, stay vigilant, and make your trades profitable.
Education
What is Reward to Risk Ratio | Forex Trading Basics
Planning your every Forex trade, you should know in advance the profit that you are aiming to make and the maximum amount of money you are willing to lose.
In this educational article, we will discuss risk reward ratio - the tool that is used to compare your potentials losses and profits in Forex trading.
What is Reward to Risk Ratio
Let's start with an example. Imagine you see a good buying opportunity on EURUSD. You quickly identify a safe entry point, your take profit level and stop loss.
From that trade you are aiming to make 100 pips with a maximum allowable loss of 50 pips.
To calculate a reward to risk ratio for this trade, you simply should divide a potential gain by a potential loss:
R/R ratio = 100 / 50 = 2
In that particular example, reward to risk ratio equals 2 meaning that potential gain outperform a potential loss by 2.
Let's take another example.
This time, you decide to short USDJPY.
From a desirable entry point, you can get 75 pips rerward with a potential loss of 150 pips.
R/R ratio = 75 / 150 = 0.5
Reward to risk ratio for this trade is 75 divided by 150 or 0.5.
Such a ratio means that potential loss outperform a potential gain by 2.
Positive and Negative Reward to Risk Ratio
Risk to reward ratio can be positive or negative.
If the ratio is bigger than 1 it is considered to be positive meaning that a potential gain outperforms a potential loss.
R/R ratio > 1
If the ratio is less than 1 , it is called negative so that potential loss is bigger than potential risk.
R/R ratio < 1
On the left chart above, the reward for the trade is bigger than a risk.
Such a trade has positive reward to risk ratio.
On the right chart, the risk is bigger than a reward.
This trade has negative reward to risk ratio.
Why?
Knowing the average risk to reward ratio for your trades, you can objectively calculate the required win rate for keeping a positive trading performance.
With R/R ratio = 0.5
2 winning trades recover 1 losing trade.
You need at least 70% win rate to cover losses of your trading.
With R/R ratio = 1
1 winning trade, recover 1 losing trade.
You require at least 50% win rate to compensate your losses.
With R/R ratio = 2
1 winning trade recovers 2 losing trades.
You will need at least 35% win rate to cover losses of your trading.
In the example above, the trading setups have 0.5 reward to risk ratio. In such a case, 2 winning trades will be needed to win the money back for 1 losing trade.
Forex trading involves extremely high risk. Risk to reward ratio is a number one risk management tool for limiting your risks. Calculating that and knowing your win rate, you can objectively decide whether a trade that you are planning to take is worth taking.
❤️Please, support my work with like, thank you!❤️
A note to Risk Management and Exit StrategyI had a message and was inspired to speak my mind about correct risk management.
What is it? How can I use it? How does it serve me?
First of all, positions with no SL are a really bad idea, I don't care what bankers do. It is not cool or useful at all.
Depending on how refined your strategy is, you will be struggling with higher Exits in your beginnings.
Risk Management for Beginners:
Start with an 1:1 Risk Reward. Which means, exit all positions at the same amount where your Stop Loss would have been. It is the safest and fastest option until you know enough about the markets to aim for more. If not, most of your trades will land in BE and your losses will hurt even more. Trust me, I've been there.
Risk Management for advanced traders:
When your general win quota has reached about 70-90%, your account will not necessarily will be growing. Because we are humans and always will do some stupid experiments in between, whether we feel too safe with a bad idea, or want to try something new.
Its time to set 2-3 Exits. Use multiple positions, so you can leave them running.
2 Exit Strategy (50% at Exit 1 and 50% at Exit 2)
3 Exit Strategy (25% at Exit 1, 50% at Exit 2, 25% at Exit 3) This way you secure 200% with every successful trade.
Risk Management for Pros:
You can aim for higher exits minimize your Stop Loss. When you know where to find an Exit5 or Exit 10. Never reenter the same trade, the first idea is always valid.
Have a 4 Exit strategy without variation on the amount of risk per trade, and take an extra open trade for higher positions. Always know what your target is. (25% at Exit 1, 25% at Exit 2, 25% at Exit 3, 25% on the open position).
Do never vary the amount of your risk. Be aware that emotions do not matter and there is no difference in between trades. All aim to be profitable, otherwise we would not be trading. If you decide for 0.5% or 1 or 5%, it doesn't matter, just do not vary ever. Down or upscale slow, very slow. 
Education
The Power of Risk ManagementRisk management is one of the key topics in forex trading that is not emphasised enough. Instead, there is too much emphasis on solely focusing on being on the right side of the market to consistently make money while ignoring proper risk management in the process. This post will completely debunk this, so after you have finished reading, you will hopefully have a completely new mindset on how to actually succeed long-term in forex.
Absolute Uncertainty
The forex market is a place where the majority of people struggle to find consistency. This is due to the nature of the market, where uncertainty is constant. What I mean by this is that the market is completely irrational and neutral; when you want to buy, there is somebody else on the other side that wants to sell, and vice versa. The market is filled with millions of other participants with their own goals, beliefs, and motivations; therefore, the market will go where it wants to go. Unfortunately, not enough people really grasp what this means and are obsessed with how many trades they can get right to make money.
The main purpose of risk management in forex is to reduce your trading risk and grow your trading capital safely. It is great to have good skills in determining the market's direction, but more importantly, you need to have good risk management skills too.
Two different traders, Same Trades, Two different outcomes
Let's put this into practice. Let us assume that two different traders both took the exact same ten trades and both won five of the ten trades taken. Let's call these traders 'Trader A' and 'Trader B. Trader A is just obsessed with being right in the market. The trader is quite skilled in understanding the market, but the trader is just focused on how many trades are closed at profit. Trader A risks about 2% per trade; however, trades are usually cut short, and thus ends up taking profit at about half of the initial risk (2% risk per trade and 0.5:1 risk-reward). Trader B understands that the market is completely irrational, where anything can happen at any time, and to trade the market succesfully, must treat trading like a business, causing the trader to have strict risk management rules (2% risk per trade and 2:1 risk-reward) that are stuck to at all times.
As you can see from the above image, Trader A ended up with a 5% decrease to the account and Trader B ended up with a 9.98% increase to the account after both traders taking the same ten trades, why did this happen? The answer is simple Trader A cut the profits short and ran the losses whereas Trader B ran the profits and cut the losses. It does not matter if you are right or wrong in trading what matters is how much you make from your right trades and how much you give back to the market on your wrong trades.
Forex Journey Ends Before Getting Started
Due to many people not understanding the power of risk management, their journey in forex ends before it even gets started. To explain further, a lot of traders either do not calculate their risk before they trade the markets or they are aware of their risk but decide not to place high importance on it (a fatal mistake). This is one of the biggest killers of forex traders, and all it takes is one bad trade before the market takes all your hard-earned money and you are out. The market is an unforgivable place that will not care if you are blown out; it will continue to go on with or without you participating, and you must give it respect. The higher your risk, the lower your long-term survivability probabilities are. Remember, if you don't have funds to trade, you can't participate! It is as simple as that, so you must treat trading as a business and not as a casual hobby if you aim to consistently make money over the long term. Let's see how your survivability chance decreases the more you risk.
Position Sizing
Now that you understand how crucial it is not to risk too much of your account in a trade but do not know exactly how to calculate how much you should be risking per trade, how do we calculate this?
In forex, a pip movement on a one-lot contract is approximately $10, so if you enter a trade on a forex pair and it moves 20 pips against you, you will be approximately $200 down. It is very important to understand this because if you do not, you will not know how much you should be risking per trade, and you may end up overexposed in the market with a high chance of blowing your account. For example, if you have a $10,000 account balance and want to risk 2% ($200) of your account per trade on a one-lot contract, that is 20 pips; therefore, your stop loss should be around 20 pips.
However, on the same account balance, if your stop loss is 100 pips, let's say, and you are not aware of pip calculations, you are potentially risking 10% of your account in that trade alone, which is extremely dangerous, and as seen in the above example, it only takes 10 trades in a row to blow your account on 10% risk per trade. But what if your strategy requires a 100-pip stop loss, as that is where your stop loss level is, and you really want to enter the trade? You just have to trade a smaller position size! 2% of $10,000 is $200, and we know that 1 pip is equal to around $10, so $200 is equal to 20 pips. Now how do we trade this with good risk management if we want a 100-pip stop? Let's see the image below:
So as you can see in the above image, if you are on a 2% rule, which is good risk management, all you need to do is reduce the position size if your strategy requires a larger stop. There is nothing stopping you from entering the position. In the forex market, safety must come first at all times. To add, it is not worth having a smaller stop loss just to be able to trade a bigger position size, as this can be very detrimental to your trading due to the fact that in forex, there is a lot of market noise due to so many participants, and it is very easy to get whipsawed on a small stop loss and get taken out of your position.
The next time you are about to enter a position, ask yourself if it would be better to have a larger stop to protect yourself from getting squeezed out of the position. If so, just reduce your position size accordingly and have a larger stop. Always remember that the market does not limit you from trading your opportunities if you have a larger stop but do not want to risk a large percent of your account in the trade; you just have to trade smaller.
Plan, Analyse, Assess, Review
1. Plan
Before you take a trade, always have a plan for your risk management. The 2% risk per trade rule is always a safe rule, and the best traders tend to use this rule. Always know what your account balance is, what your risk amount should be, and exactly where your stop-loss needs to be. Always remember that if your stop is too tight, try trading a lower position size to give you more leeway.
2. Analyse
When you get a trade setup, before you pull the trigger and enter the trade, ask yourself, "Is there enough reward in this trade setup that it is worth entering the trade?" If the answer is no, do not take the trade! Remember, trading is not just about being right or wrong; it is also about how much you take or give to the market when you are right or wrong. The reward must always be worth the risk, and you must constantly analyse this before entering the market.
3. Assess
Make sure you often assess your current risk management, especially when you are in a trading position. For example, if your position is about to reach your take-profit target but the market looks like it wants to keep going past your target, instead of coming out of the position completely, why don't you instead take some of the position out and keep the rest of the position in? You can trail your profit to your original target and potentially make extra profits this way with nothing to lose. The same goes on the other side: if you enter a trade and at some point are no longer comfortable with the position, do not be scared to cut the position short and exit the position. Always listen to your gut instinct, as it may be telling you something for a reason.
4. Review
Always review your risk management. Take a look at your past trades and try to learn from them. Was your stop-loss too tight in a lot of your trades? Was your stop not tight enough in a lot of your trades? Are you cutting yourself short, and could you have a higher risk-to-reward ratio in a lot of your trades? There is always room for improvement, and the only way to improve your risk management is to review your previous trading history to see what possible adjustments you could make to your risk management. Remember, you should treat trading as a business if you want to succeed long-term, and most, if not all, successful businesses constantly review their risk management.
The power of risk management is absolute. If this post has not done enough to convince you of this, always remember that you are always one bad trade away from being put out of business. The majority of beginner traders blow their accounts in the first three months of trading; this is not due to them not understanding the markets but due to poor risk management and not treating trading as a business. Always remember to maximise your profits and cut your losses. All trading involves risk, and there is no 'holy grail' strategy that can eliminate risk entirely. However, by managing your risks effectively, you can reduce the impact of risk on your trading and increase your chances of long-term success.
BluetonaFX
Learn the ONLY REASON Why You Should Try on RETEST!Hey traders,
Being breakout traders we have two options for trade entries:
when the breakout is confirmed, we can either open a trading position aggressively once the candle closes above/below the structure, or we can be conservative and wait for a retest of the broken structure first.
What is peculiar about the second option is the fact that the majority of pro traders prefer the retest entries. In this article, we will discuss the pros and cons of retest trading.
✔️First, let's discuss whether the retest is guaranteed. NO. How often do we see that? Around 50-55% of the time. Does it mean that 45-50% of breakout trades
will be missed? YES.
The main disadvantage of retest trading is that a lot of trading opportunities will be missed. Occasionally the breakout triggers a strong market rally, not letting the price return back to the broken structure.
Take a look at that triangle pattern on Bitcoin. The price broke its support BUT did not retest it, so trading only the retest, the opportunity would be missed.
So what is the point to wait for a retest then? Why let the market go without us in case if there is no retest?
✔️Most of the time the breakout candle closes quite far from a broken level. Opening the trading position once the candle closes and setting a stop loss below/above the broken structure, one can get a very big stop loss. Such a big stop that its pip value exceeds or equals the potential return.
🖼In the picture, I drew a classic channel breakout trade.
The aggressive trader opened a long position as the candle closed above the channel's resistance.
His stop loss is lying below the lower low of the channel.
Analyzing his risk to reward ratio, we can see that his reward equals his risk.
On the right side is the position of the conservative trader.
His stop loss in lying on the same level.
However, instead of opening a trading position on a breakout candle, he decided to wait for a retest of the broken resistance of the channel. Just a slight adjustment of his entry-level gives him a completely different risk to reward ratio.
❗️Patience pays in trading. Missing some trades a retest trader will outperform the aggressive trader in the long run.
Trading is about weighting your potential gains & losses. Paying commissions and swaps for every trade, it is much better for us to trade less but pick the setups that give us a decent potential reward.
What type of trading do you prefer?
Let me know, traders, what do you want to learn in the next educational post?
