Wednesday, August 23, 2017

Forex Entry and Risk Management

October 29, 2010 by  
Filed under Forex FAQ & Latest Post


In today forex faq, I am going to answer a question about forex trade management from one of our fellow traders and another question about trading profit from another trader.

Below is the question

I would like your help on this Kelvin. My first rule in trading is never to risk no more than 2% of my account balance at any one time. Also, I use 1:2 risk reward ratio minimum for each trade.

My problem is this:

Assuming the 2% risk is $20 on a mini account. Should I open different pairs that have different risk amount while maintaining that the total risk amount for all open trades is not more than $20 or should I open one trade at a time, with the correct number of lots for that trade that equals to $20?

It is great that you have a risk management on hands. As for your question above, it is okay for you to enter several trades but the overall must be within the 2% risk that you are going to risk. With $20 per trade, it is very hard for you to open several trades at one time. However I will prefer to do one trade at a time so that I am more focus and able to handle the trade properly.

Here is the second question

Hi Kelvin,

I really appreciate all the explanation about the trading indicators. I refer to them every now and then.

However, I regret to say that I’ve not been able to enter trades accurately; therefore I seem to lose money more than I profit.

It’s frustrating to see profits made been taken away and running in the loss. I’ve lost >70% of my deposit. I’m just a small trader but I’m not giving up – determined to learn it right. Hope to reverse it.

First of all, I will like to praise the determination that this trader has. It is very important for new trader to persevere and slowly learn how to improve your trade.

From the above question, I am not sure whether it is because of your inaccurate entry or your exit strategy that causes your loss.

If it is due to your inaccurate entry, I will suggest that you make use of support and resistance to enhance them. In order to do that, you need to do some homework before your trade begins. You need to identify all the major support and resistance level like the Fibonacci, Pivot Point and old swing high or low.

Once you have identified them, you can make use of them for your entry and exit. Let says that you see a setup on your chart that allows you to enter a trade; you can do a check to see if the price is approaching or near any major support or resistance levels.

If you are looking to SELL, it will be nice if you see the price moving up towards a major resistance or it will nice if you see the price breaking below a major support.

Similarly, you can use these levels of support and resistance for your exit. The main reason why profit is usually taken back is because it has hit a major support or resistance that you did not identify on your chart. If you have done your work and list out all the major levels, you will then be able to exit your position before it hits the level and therefore be able to protect your profit.

I hope that I have answered your question and do feel free to contact me if you have any further problem. Last but not least, I will suggest that you try your strategy with major support and resistance level on a demo account and see if it works before you utilise it on your live acoount.

Comments

6 Responses to “Forex Entry and Risk Management”
  1. John O says:

    Good day Kevin,
    I need a mentor.

  2. Dr Julius Ssemakula says:

    Hullo Kelvin
    Thanks for the blog
    So is this the best way to enter trades
    and since i am not on my platform all time can i identify the entries and set them up as pending orders.
    Thank very much because now i know how to enter and exit

  3. Rahim says:

    Hi Kelvin,
    After reading Trend Line e-book i have little confidence on my trading and still practicing ,but i was confused when some says that we must look into bigger time frame (H1 time frame) to catch the market’s trend then enter trade on small time frame (M5 timeframe). Sincerely i need your advice . What is the best time frame to follow when plotting the trend line as taught in the e-book.

    Thanks.

    • Kelvin says:

      Hi Rahim

      The trend line strategy in the book is not confined to any time frame, you can use it on any time frames that you usually trade with. I usually plot it on 15 minutes chart as that is the time frame where I look for trading opportunity.

  4. John O says:

    You are a blessing to many of us. God bless you. My question is on Pivot points: Suppose I am trading in the 1hr time frame, can I use the last closed candlestick to calculate Pivot Points?

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