Forex Risk — A Structure You Can Follow Right Now

alright guys pop quiz out of all the videos that I have made so far which one of them has the highest impact on your trading account none of them it's this one the one you're watching and here it is it's the risk video you knew it was coming and I'm very glad it's here this is essential viewing because in this video we will talk about the dangers of bad risk many of you have gone through what I'm about to show you it's gonna sting a bit but even if you're just trading for the first time hopefully you're going to learn what having subpar risk can do to your account and you will want to make sure that you never make these mistakes yourselves we're gonna go over that magic number what percent of your trading account should you be putting on every trade we will answer that here we're gonna use the ATR do you guys remember the ATR video it is the most successful video I have ever done in terms of views people loved it and it's a good thing they did because we are going to carry that forward into every video I think I'm ever going to make in terms of money management we're gonna use that today to figure out just how much pip value you should put on every single trade you make from here on out and we're going to talk about how many trades you can have open during this whole time we're touching on that a little bit and then after everything we have talked about there are still a couple ways that you can really really screw this up so stick around till the end you're gonna want to know because you're gonna watch the whole video for nothing if you don't know that part so I think you know the answer to this but do you know who pays almost no attention to risk has no numbers in place has no plan in place and just spends all their time worrying about trade entries it's the 99% yeah it's the exact type of people that we strive not to be it's the exact group I am trying to get you out of that 99% of forex traders that either lose money breakeven or just make enough to barely keep it going but not enough to trade it a pro-level or say for the retirement or any of the places that all of you I know want to be because you all told me this now one of you took the time to learn Forex risked your own money just to be in this 99% we're gonna get you out of that but we have to understand who these people are and what they do so we don't become them let's talk about that the 99% has no set risk and if for some reason they do it's some random arbitrary number and they pulled out of thin air and that number changes depending on how they feel depending on if the last trade was a win if the last trade was a loss if news is coming up you know they have no set plan in place and after they end up losing their money which they're going to do they chase their wins that risk goes way up so they can get that money back really dangerous slope to go down and they also have no understanding of what we're going to talk about at the end of this video a big trap that people fall into now let me show you what happens when your risk is out of whack and it's going to ruin your account it's just a matter of when and let me show you how that affects everything you're doing and everything you're going to do in the future so if you have a $50, 000 trading account it's just the arbitrary number I always use and that account goes down 20% it goes down to 40, 000 you might say to yourself well that sucks but I can make it back problem is it's really hard to make back you have to beat Warren Buffett's average annual return just to get yourself back to break-even that sucks and at the rate you're going this has no chance of happening you would have to all of a sudden turn into an amazing trader overnight just to get back to where you started not good this is not why you started trading because this is this here alone is a hole that is pretty much impossible to get out of let's say you took it down to half the value let's say you brought it all the way down to 25, 000 you're like well that's still 25, 000 I can do something with that right not really you'd have to double that just to get back to your initial deposit there's some very very good traders there that would take them three four years even after compounding to get a hundred percent return on their money it's certainly not going to happen to you if this is you you might as well just pull that twenty five thousand out hit the reset button learn how to trade all over again and then maybe start over if you think you've figured it out but at this point you might just have to take a step back and think that maybe trading just isn't for you maybe you're better off just giving your money to somebody else because getting down to this level is trading suicide do not let this happen now getting into these holes is the result of trading recklessly but there is also a danger of trading too timidly fortune favors the bold nothing favours the timid at all and this is a bad way to go too because even if you're a very good trader if your risk is too small it just makes your trading not worth it let's say you took that 50k up to fifty two over the course of a year that's four percent that's good but there are places where you can just park your money and do nothing and make four percent if you just had a reasonable risk profile in place that number could be much higher and that number could be really worth trading you compound a better number over and over and that's why people trade that will get you out of the 99% but if you're trading a lot and at a very successful level and only pulling this number out because your risk is too low you might as well just demo trade learn an actual risk profile see what that does if you're good your accounts going to look really nice at the end of the year and you can carry that system the entries the trade management the money management the psychology everything you're doing right carry that over into a real account and start making real money now look four percent is not bad it's way better than most traders do but if that number is low because your risk is too low you're doing it wrong the people in the slide before that took their accounts way down were too reckless the people in this slide here were too timid here's what you have to understand about risk for all of you people who are too risk averse the most successful people in the world all of them they take lots of risks every day all the time the big difference is is they know how to minimize that risk better than everyone else when you think of the word risk just don't think of being reckless or jumping off a cliff that's not how you need to look at it I take risks every single day I trade but I make sure that even if I take a loss the chances of it being a big loss are very very low we're gonna talk about that in this video that's gonna be really great I take risks every time I make a video or make a podcast you know I'm putting myself out there I'm opening myself up to criticism I'm opening myself to people that might watch my video for 20 seconds and lose interest but I minimize that by doing my best to one find a big problem that people want to solve to share knowledge that can help that problem and 3 find out what people want to know about first and then make a video based on that I am constantly trying to be in that headspace of somebody who is not afraid to take a lot of risks but also every time I do calculate the odds and do whatever I can to minimize the chance of failure this guy doesn't take any risks he will never be successful he's always going to be unhappy he's always gonna wonder what might have been this guy takes a billion risks he makes billions of dollars and I guarantee you it's not because he was reckless with that risk taking every risk Richard Branson takes is very calculated and really this is the only mindset shift that many of you need to make start taking more risk but just understand that you're going to be ok if you take the steps to minimize what that risk actually is so hopefully you guys understand that because you cannot be a good Forex trader without this it's something I need to touch on before we go forward but I've touched on it so let's go forward now we're going to talk about that magic number what percentage of your trading account should you be risking on every single trade you make now you guys that have been with my videos for some time or those of you who listen to the podcast already know how I feel about can internal wisdom conventional wisdom is what gets people into the 99% and what keeps them there forever conventional wisdom and Forex is almost always the place you do not want to be you want to seek out better and seek out more in this case conventional wisdom got it right almost every where you see they're gonna tell you the same thing risk 2% of your entire trading account on every trade and they're right there exactly right I feel the same way 2% is the correct number here but it's not always that simple there's some rules to follow behind this understand 2% is the most you can lose on a trade make sure your stop-loss indicates this all right I'm gonna show you later on in this video how to calculate this and the best news is is when you actually lose a trade more often than not you're not actually going to lose 2% you just set your stop-loss there a lot of times you're gonna exit a trade well before price even hits it if you have fifty thousand dollars in your trading account two percent is a thousand dollars that seems like a lot of money to risk on one trade and I suppose it is but you have to look at it from a percentage point you don't end up like the timid guy who does really well and only pulls in a 4% return year after year you have to take risks like this but just understand that far more often than not when you lose on a 50 thousand dollar trading account you are not going to lose a full 1000 dollars again it's about taking those risks but also doing everything you can to minimize those risks so here is the point in the video and in this is the point in any video I have ever done where you are absolutely going to want to take notes if you don't take notes already you are going to want to have these little simple equations next to you somewhere so you can always go back and refer to it and plug it in because if not you're gonna have to go back and watch the video and that's a pain in the ass it's better to have it right next to you so pause the video get your notes out and here we go so you remember me saying this before and I meant it we're gonna use the ATR a lot here you guys probably seen the video and like I said before it is my most popular video to date I think it's because people love indicators I announced in that video and in the title this is the top one that I've ever used so people got pretty excited over that but its utility is for money management and this is the money management section oh if you didn't see that video alleged let me just go over what it is really quick the ATR indicator all it does it just tells you how many pips from the top of the candle to the bottom of the candle a currency pair moves on average the default settings is 14 which means it takes the previous 14 candles takes the distance between the top and the bottom of those candles and makes an average out of it and so this can tell you it can it's never going to predict the future but it can best tell you what to expect going forward how much your currency pair is moving right now and how much it is expected to move in the future if this is unclear to you just go back and watch the ATR video if you haven't like I said it's a central view and you're gonna have to watch it anyway but the magic number for the ATR alright guys here's where you gonna want to write this down one and a half times the ATR for a currency pair is where your stop-loss should be 1.

5 the ATR away from where the price is right now so for example if the ATR for a particular currency pair is 80 your stop-loss is going to want to be 120 pips away simple as that now you always know where to put your stop loss at any given time once you enter a trade now this will change if you start making profit but for now when you very first enter a trade this is how you determine where your stop loss goes your stop loss does not go by some support or resistance line or on some Fibonacci level no just do it this way and you'll always know where to put it ignore everything else now also for your notes we are going to go to my charts and I'm going to actually do this in front of you so you can see it but we now need to find out what our pip value is going to be for any given pair it's not going to be the same across the board that's ridiculous we've been through this before what you need to do is find out whatever 2% of your entire account is alright so we said before if it's $50, 000 2% is 1000 but your accounts gonna go up and down so this number is going change a lot so you need to figure out what this is first and once you do we call this your risk okay and get that part let me move on then you got to figure out what 1.

5 ATR of the currency pair actually is you may have already done this but this is where you're gonna put your stop loss and now at this point you know your stop-loss goes you know how much of your account you're actually risking so all that is left to do is take that risk and divide it by the ATR and that is going to tell you how many dollars per pip you need to put on this trade and then once you do this equation over again it's going to show you the pip value for every single trade you make from here on out make sure you have written this down I'm going to go to my charts and my trading account and show you how this works and walk you through it but you are going to want to have this written down somewhere so go ahead and get all that down and once you do we're going to go ahead and go to my charts so here we are at practice account I set up through onda just so I could show you guys what to do here I literally set this up yesterday and I went ahead and entered an illegitimate an exact 50000 so what I need to do is take where my account is right now yes even if I have a trade open this is the number I want right here and it's moving so I'll just go ahead and kind of freeze it right here 52:36 I don't worry about the cents but we're gonna use that number to figure out our risk 52-36 so put your calculator up and I'm doing this with a mouse so be patient 50000 236 and we will multiply that by 0.

02 and that's how you get 2 percent of your account so I'm just gonna round that number up to 1000 and $5 and I am going to write that number down that is my risk so now I have to go to whatever currency pair I want to trade find the ATR multiply that by 1 and a half and at that point I will have almost every number I need let's go do that so as usual I don't cherry-pick we just go straight to the Eurodollar the most commonly traded currency pair in the world go to the daily chart because that's what I use and I already pulled the ATR up so the ATR is currently sitting at let's just say 86 so that's good now I know what to do pull my calculator up cancel that and I will take that 86 multiply it by 1.

5 and there you have it 129 now I have the numbers I need and it's nice in my calculator did this just put them off to the side to figure out what my pip values gonna be now my broker does this for me you're gonna see this really soon here but you might want to go ahead and figure out what your stop-loss is going to be now and write that down so let's just look do we want to go long or short here I don't have a dog in this fight I'm not in this trade I really don't care which way I go this is all demo so well we are we are trend traders here let's just go ahead and go long I don't think you can see it but the price is at 1.

1 707 as we speak it will show it here so no matter where it goes after I'm done talking let's just go ahead and take that number 1 1 707 you don't really need the decimal it's pretty easy to figure out and then we're going long so this is going to be – if it was short we would do plus but minus a 129 pip stop-loss and now we know to enter our stop loss in at 1.

15 seven so then I would write that number down – so I can plug that in alright so we know where our stop loss is going to be we have these numbers now we just go ahead and excuse me we go ahead and figure out what our pip value is take that number there cuz we round up and then divide it by 129 your pip value is about seven dollars and 80 cents perfect so you can write that one down too you won't have to write a lot of these down going forward because you're gonna be used to it but in the beginning it doesn't hurt to write stuff down so let's go ahead and make a trade knowing what we know all right so back here on our FX trade go ahead and pull this up he's got all our numbers right there which is nice we'll go ahead and make a trade oh we got rid of our calculator when we did that maybe we can do both here let's see can both of you coexist yes okay so as far as units go you're gonna have to kind of guesstimate this because we know we want this right here to say $7.

80 we just don't always know how it's gonna get there now the good thing with the euro/usd it's generally pretty easy I think we can just go 780, 000 oh not that much seven 7800 is what I meant to say and now we have exactly what we need all right so now we got to put our stop loss in and if I just go like this if you guys have a Honda you can just do this and put in 129 and it'll do it all for you but some of you don't have that option so let's just go ahead and do it the old way and we know that we want one point one five seven all right so we have everything in order our stop loss is in place our pip value is where it needs to be we have the right amount of risk on the table and we enter the trade and there it is this is how you enter a trade with the correct amount of risk and that is how you figure it out now since I'm not really in this trade let's just go ahead and cancel it close yep take our $10 loss and we move on so that's how you do it and I just looked at what I did and I should have got another digit over on the stop-loss so for you guys paying very close attention that's the one little mistake I made I went four digits instead of five but we need to move on here I hope this makes sense to you I just want to give you the gist of how this works now let's move on to the really good news because losing a thousand dollars even on a 50, 000 dollar account does not sound very enviable but the good news is I rarely have my stop-loss hid it doesn't happen very often if I'm putting forth fifty thousand dollars in a trading account I'm barely ever losing a thousand because I have an indicator that gets me out of bad trades before this happens and you can find one too I'm not going to hand feed this one to you this one you're gonna have to find but they are out there and I call them exit indicators all right so let's go to the outline of the algorithm that I have and show you what you need I have already given you the only thing I'm ever going to actually physically give you and that's the ATR indicator if you guys follow the podcast on episode 9 I talked about finding that confirmation indicator find an indicator that says yes we are officially in a trend you may go long or you may go short and a lot of you have already gotten to work on that and I'm really happy to see that but you are also going to need at some point an indicator that not necessarily says okay you can go long or short but an indicator that says yeah this trend you're following that you're on right now it's probably done and when you find an indicator like that it is going to get you out of a trade well before your stop loss is actually hit when looking for an exit indicator you want to find one that lets the trade breathe that doesn't get you out of a trade so soon that you don't that the trade doesn't have time to actually do what it's going to do but also an indicator that gets you out before your stop-loss gets hit that's what you are going to want now sometimes a really good confirmation indicator can do that but sometimes you're gonna find another indicator that just works better for that purpose so as you guys are all out there demo trading right now trying to put that great algorithm together start also looking for a great indicator that gets you out of trades before price hits your stop-loss this is how you take risks and minimize those risks all at the same time if you go to the blog for episode 9 of the podcast I will link the blog below it tells you where the best place to go or I guess best is subjective certainly the largest place to go when it comes to finding those under-the-radar indicators so if you are stuck for a place to go to find these and test them out hit that link below and it will tell you and yes I am leaking all of this out piece-by-piece we go slow here and we do this for a reason I already feel like I'm giving you a lot telling you to go out and find a confirmation indicator and an exit indicator before I even start giving you these other pieces but if you can start finding good ones you're going to get closer and closer to having an algorithm that really works and if you couple that with really great money management the sky is the limit you will be doing things than 99% never even thought of doing and getting you to that point is the whole reason this channel was even created in the first place the whole reason the podcast was created the podcast sets you up to succeed the YouTube channel actually shows you what to do and what not to do so you have this in place start getting that in place and that in place and you're gonna be in a really really good spot and we're gonna continue to go slow and ever so slightly move closer and closer to where you're gonna want to be with this so but there is a warning now I mentioned this early on in the video there you can really stumble over this if you're not careful let's talk about it so there's a way to over leverage here and you're about to see what I mean by that but I didn't create a slide on this presentation that talked about how many trades you can have open at one time really you can have as many open as you want all at two percent risk that's fine as long as you avoid this pratfall right here do not trade the same currency more than once at a two percent risk write this down if you have to if you've been taking notes add this to your notes this is big so what do I mean by this for example let's say you really think the dollar is going to get stronger and you're getting signals left and right on your charts saying that you should you need to put your money behind the dollar don't do this don't take a dollar short an aussie dollar short and a dollar yen long all at a two percent risk don't do that because if you do that guess what your 2% risk is gone you now have six percent of your trading account on the United States dollar if anything were to go sideways with the dollar or if the big banks just woke up and said no well it's time to take the dollar short you're in trouble you might have three trades that all hit at stop-loss and in one fell swoop you could have put an almost irreversible dent into your trading account you guys know how long it takes to make up losses like that do not let this happen to you all right now there is a way to do it right to make sure you avoid this let's talk about it what you can do is if you got let's say a long signal on the euro yen and then you also got a long signal on the euro Aussie just pick one and write it whichever one you saw first just go with it vaya con Dios now you can't take every trade out there sometimes so you can just pick one and go with it or you can also go half and half it's like I said if you're getting a long signal on the euro yen and the euro Aussie put 1% on one and put 1% on the other I'm ok with that that way it's a little bit of a hedge almost if one of them doesn't do you well maybe the other one will and it'll save you from a loss which is important or and I want you to approach this last one with caution let's say that the euro yen is giving you a signal now but that euro Aussie is just like one candle away from giving you a signal you know tomorrow go half on the euro yen and that way you can leave the door open if that euro Aussie actually does give you that signal but I wouldn't do this a lot I would rather you do this then do that because in doing this right here in a way I've given you a license to go timid I don't want you going 1% on every trade just on the thought that there might be something else coming around the corner in that same currency because then you're gonna end up here you're gonna end up like the guy who doesn't make the money they should have made and your results are gonna fall flat alright so just be careful to not do that so in conclusion let's wrap it all up here never fear risk take risks take lots of risks that's what being a trader is all about but just be smart about it because that's what being a good trader is all about be consistent take the numbers I've given you and do not deviate from them alright over time after you've done this and you've gotten experience with it you can adjust it how you want if you think there is a better way to do it I am all for that but take what I've given you and just get really used to plugging it into your everyday trading you are going to see some really nice results I think as long as your trade entries are good to getting that money management type is everything we just know the calculations I hope you wrote them down and find that exit indicator that is going to get you out of a trade sooner than it would if it actually hit your stop-loss I have literally saved thousands of pips just by having my exit indicator in place and not allowing the trade to go all the way that far so you know what does that worth to you what are your pip values sitting at right now multiply that by a few thousand you know that's really really adds up and don't fall into that over-leveraged trap I've given you a structure but I've also given you a way to really screw it up if you're not careful so just make sure you avoid that too now I have given you an entire risk management structure and we haven't even talked about what to do when your trade is actually winning that's going to be a whole other video but what I've already given you is something you can actually use every time you enter a trade with defined levels and numbers who else out there is doing that as important as risk management and money management is it's everything who out there is doing that nobody just us channels and websites out there might throw the 2% number out there and talk a little bit about it but that's as far as they go that doesn't really help you every single video I make on this channel is no matter what it's set up to do whether it tells you to do something or tells you not to do something is something that you can take away plug it into your actual trading and instantaneously start to see better results so if I'm doing that with one video imagine what your trading is going to look like 20 30 videos down the road as small and as new as we are there is not in a more impactful forex trading channel out there on YouTube does not exist this is where you want to be so hit subscribe give me a thumbs up and go out there and start looking for those indicators put that system together and now you have a good risk management system already in place to go along with it now all you need to do is start using it get that experience under your belt get used to doing things this way I think you're really gonna like what you see you guys let's go get it.