How To Setup A Trade

Dec 1, 2019The most important part of trading is risk management. A correctly calibrated risk management system helps a great deal in reducing emotions and increasing returns. There are two elements that allow a trader to control the risk of his entry: the maximum risked amount of equity per entry and the stop loss. In the example above, we are assuming that we are about to enter a long trade in XAUUSD at the closing price of 1463.30/oz. What are the steps to define the maximum risked amount and to define the optimal stop loss range? An easy way to do this is to divide the account value by 32 to find out the maximum risked amount and divide the ticker value by 32 to find out what the stop loss range should be. The fraction of 1/32 is handy in calibrating risk management metrics. Doing this helps in avoiding over-leveraged trades through defining the maximum risked amount, and it aids in minimizing the risk of being stopped out every other trade through defining a stop range that is not too tight for the market volatility.