Risk Management in Market PDF
Risk Management in Trading Gold
In any business, so as to make profit a trader must learn how to manage the risks. To earn profits in trade you need to learn about the different equity management strategies described on this learning gold tutorial web-site.
When it comes to gold online trading, the risks to be managed are potential losses. Using risk management rules won't only protect your account but also make you profitable in long run.
What's Draw-Down in XAUUSD Trading?
As traders the number one risk in trade is referred to as draw down - this is the sum of money you have lost in your trading account on a single trade.
If you have $10,000 gold capital & you make a loss in one trade of $500, then your trading drawdown is $500 divided by $10,000 which is 5 % trade draw down.
What is Maximum Draw-Down?
This is the total amount of money you have lost in your trading account before you start making profitable trades. For example, if you have $10,000 gold trading capital and make 5 consecutive losing trade positions with a total of $1,500 loss before making 10 winning trade transactions with a total of $4,000 profit. Then the trading maximum draw-down is $1,500 divided by $10,000, which is 15 % maximum xauusd trade draw down.
Gold Draw-Down is $442.82 (4.40%)
Max Draw-Down is $1,499.39 (13.56 %)
To learn how to generate above trade reports using MetaTrader 4 gold platform: Generate Gold Reports in MT4 Guide - Risk Management in Market Books - Equity Management in Gold Books
Risk Management in Trading XAUUSD
The trading example shown & described below portrays the contrast between risking a small percent of your trading capital compared to risking a higher percent. Good Risk Management in Trading principles requires you as a trader not to risk more than 2 % of your total account equity on any one single trade.
Gold Percent Risk Technique
2 % and 10% Gold Funds Management Rule - Risk Management in Trading Gold
There's a large contrast between risking 2 % of your gold account equity compared to risking 10 % of your equity on one trade.
If you happened to go through a losing gold streak and lost only 20 trade transactions in a row, you would have gone from beginning gold trading equity balance of $50,000 to only having $6,750 left in your account if you risked 10% on every trade. You would have lost over 87.5% of your trading account equity.
However, if you only risked 2 % you would have still had $34,055 in your account which is only a 32 % loss of your total account equity. This is why it's best to use 2 % risk management strategy in xauusd.
The difference between risking 2 percent and 10% on one trade is that if you risked 2 percent you would still have $34,055 in your account after 20 losing trades.
However, if you risked 10 % you would only have $32,805 in your trading account after only 5 losing trades that is less than what you would have in your account if you risked only 2 % of your trading account and lost all 20 gold trades.
The point is you want to setup your Risk Management in Trading rules so that when you do have a loss making period, you will still have enough gold trading equity to open a trade transaction next time.
If you lost 87.5% of your capital you would have to make 640% profit to go back to break even.
As compared to when if you lost 32 % of your trading capital you'd have to make 47% profit to get back to the break-even. To compare it with the examples 47% is much easier to break even than 640 % is.
The trading chart below shows what percentage you'd have to make in order to get back to breakeven if you were to lose a certain percentage of your trading capital.
Concept of Break-Even - Risk Management in Market Books
Account Equity & Break Even - Risk Management in Market PDF - Money Management in Market Books
At 50 % trade draw-down, a trader would have to make 100% on their invested gold trading capital - a task accomplished by less than 5 % of all traders worldwide - just to breakeven on a trading account with a 50% loss.
At 80% gold draw down, a trader must quadruple their trade equity just to take it back to the original equity. This is what is referred to as to "break-even" - which means - get back to your original trading equity balance which you as a trader started with.
The more funds you lose, harder it is to make it back to your original account size.
This is why as a trader you should do everything you can to PROTECT your trading account equity. Do not accept to lose more than 2 % of your account equity on any one single trade.
Gold Money management is about only risking a small percent of your capital in each trade so that you can survive your losing streaks and avoid a large draw down on your trading account.
In gold trading, traders use stop orders which are put in order to reduce losses. Controlling risks in xauusd trading involves putting a stop loss order after placing an new trading order.
Effective Risk Management
Effective trade equity management requires mitigating all the risks in xauusd & one should create a money management trading system & a equity management trading plan. To be in trade or any other biz you must make decisions involving some risk. All gold trading factors should be analyzed to keep risk to a minimum & use above equity management tips on this learn gold lesson - Risk Management in Market Books.
Ask yourself? Some Tips
1. Can the risks to your trade activities be identified, what forms do they take? and are these clearly understood and planned for in your written trade plan? All the risks should be taken care of in your trade plan - written gold trading plan.
2. Do you grade the risks encountered by you when xauusd trading in a structured way? - Do you have a equity management method and a trade plan? have you read about this learning gold trading course which is well covered here on this learn gold guide tutorial for beginner traders.
3. Do you know the maximum potential risk of each exposure for each trade that you place?
4. Are trading decisions made on the basis of reliable and timely market information & based on trading strategy or not? Have you read about systems on this learning trade course.
5. Are the risks large in relation to the trade turnover of your invested gold trading capital & what impact could they have on your profits margins & your account margin requirements?
6. Over what time periods do the trade risks of your trade activities exist? - Do you hold trade transactions long-term or short-term? what type of trader are you?
7. Are the exposures in trading one off or they--areare--they recurring?
8. Do you know enough about methods in which your trading risks can be reduced or hedged and what it would cost in terms of profits if you didn't include these measures to reduce the potential loss, & what impact would it make to any upside of your profit?
9. Have your equity management principles been adequately addressed, to ensure that you make & keep your trading profits.
Risk Management in Market PDF - Money Management in Market Books - Equity Management in Gold Books
