Undergraduate - Senior

Risk management is one of the most important topics you will ever read about trading.

It takes money to make money. You need trading capital.

So we know that risk management will make us money in the long run, but now we’d like to show you the other side of things.

How much should you risk per trade?

To increase your chances of profitability, you want to trade when you have the potential to make 3 times more than you are risking.

Traders are often so fixated on their winning trades that they totally ignore their losing trades.

Be the casino, not the gambler! Remember, casinos are just very rich statisticians!

Most professional forex traders and money managers trade one standard lot for every $50,000 in their account.

Let’s discuss leverage and margin and the difference between the two.

Assume you are a successful retired British spy who now spends his time trading currencies. You open a mini account and deposit $10,000.

Margin can be thought of as a good faith deposit or collateral that’s needed to open a position and keep it open.

Hopefully, we’ve done our job and you now have a better understanding of what “margin” is.

As a trader, it is crucial that you understand both the benefits AND the pitfalls of trading with leverage.

Besides amplifying your losses, leverage also has another way of killing you.

Most beginners underestimate the potentially devastating damage leverage can wreak on their accounts.

Now that we’ve learned the hard lesson of trading too big, let’s get into how to correctly use leverage using proper “position sizing.”

To make things easier for you to understand, as usual, we’ll be explaining everything with an example.

Let’s say you want to buy EUR/GBP and your broker account is denominated in USD.

After journeying across the globe with Newbie Ned, and through some basic position sizing examples, you’re well on your way to becoming a competent risk manager.

Managing and preserving your trading capital is your most important job as a trader.

Let’s start off with the most basic type of stop: the percentage-based stop loss.

The previous lesson discussed how to set stop loss using a percentage-based amount of your account.

To put it in simple terms, volatility is the amount a market can potentially move over a given time.

Time stops are stops you set based on a predetermined time in a trade.

Let’s talk about the four biggest mistakes traders make when using stop losses.

Once you’ve done your homework and created an awesome trade plan that includes a stop out level, you now have to make sure that you execute those stops if the market goes against you.

Well there you have it… dnbcmarkets.com’s awesome primer to setting stop losses.

Now that you know how to set proper stops and calculate the correct position size, here’s a lesson on how you can get a little creative in your trading.

As mentioned earlier, scaling out has the obvious benefit of reducing your risk as you are taking away exposure to the market…whether you are in a winning or losing position.

In the previous lesson, we discussed how to scale OUT of a trade. Now, we show you how to scale IN a trade.

Now on to the fun stuff. If you catch a great trending move, scaling into it is a great trade adjustment to increase your max profit.

There we have it… the coolest guide EVER on scaling in and out of your trades. Let’s see how much you of this information you have soaked into your noggin.

Have you ever noticed that when a certain currency pair rises, another currency pair falls?

Are you a visual learner? Do you like looking at sexy women or hunky men? If so, perfect!

Currency correlation tells us whether two currency pairs move in the same, opposite, or totally random direction, over some period of time. When trading currencies, it’s important to remember that since currencies are traded in pairs, that no single currency pair is ever totally isolated. Correlation is computed into what is known as the correlation coefficient, which ranges between -1 and +1. Here is a guide for interpreting the different currency correlation coefficient values.

The forex market is like a schizophrenic patient suffering from bipolar disorder who constantly eats chocolates, experiences extreme sugar highs, and has volatile mood swings all day long. We’re not even exaggerating. Although currency correlations between currency pairs can be strong or weak for days, weeks, months, or even years, they do eventually change and can change when you least expect it. The strong currency correlations you see this month may be totally different next month.

As you’ve read, correlations will shift and change over time. So keeping on top of current coefficient strengths and direction becomes even more important. Lucky for you, currency correlations can be calculated in the comfort of your own home, just you and your most favorite spreadsheet application. For our explanation, we’re using Microsoft Excel, but any software that utilizes a correlation formula will work.

As you’ve read, correlations will shift and change over time. So keeping on top of current coefficient strengths and direction becomes even more important. Lucky for you, currency correlations can be calculated in the comfort of your own home, just you and your most favorite spreadsheet application. For our explanation, we’re using Microsoft Excel, but any software that utilizes a correlation formula will work.