Risk Management in XAUUSD Market PDF
Risk Management in Trading Gold
In any business, in order to make a profit one must learn how to manage risks. To make profits in gold trading you need to learn about the various gold money management strategies discussed on this learn gold trading tutorial website.
When it comes to gold online trading, the risks to be managed are potential losses. Using gold risk management rules will not only protect your gold trading account but also make you profitable in the long run.
What is Draw Down in XAUUSD Trading?
As gold traders the number one risk in gold trading is known as draw down - this is the amount of money you have lost in your xauusd trading account on a single xauusd trade.
If you have $10,000 gold trading capital and you make a loss in a single gold trade of $500, then your gold trading draw down is $500 divided by $10,000 which is 5% xauusd trading draw down.
What is Maximum Gold Trading Draw Down?
This is the total amount of money you have lost in your xauusd trading account before you start making profitable xauusd trades. For example if you have $10,000 gold trading capital and make 5 consecutive losing gold trading positions with a total of $1,500 loss before making 10 winning xauusd trades with a total of $4,000 profit. Then the gold trading maximum draw down is $1,500 divided by $10,000, which is 15% maximum xauusd trading draw down.
Gold Draw Down is $442.82 (4.4%)
Maximum Gold Draw Down is $1,499.39 (13.56%)
To learn how to generate the above gold trading reports using MT4 gold platform: Generate Gold Trading Reports on MT4 Tutorial - Risk Management in XAUUSD Market Books - Risk Management in Gold Trading Books
Risk Management in Trading XAUUSD
The xauusd trading example illustrated and explained below shows the difference between risking a small percent of your gold trading capital compared to risking a higher percent. Good Risk Management in Trading Gold principles requires you as a trader not to risk more than 2% of your total gold trading account equity on any one single xauusd trade.
Gold Percent Risk Method
2% and 10% Gold Trading Money Management Rule - Risk Management in Trading Gold
There is a big difference between risking 2% of your gold trading account equity compared to risking 10% of your equity on a single xauusd trade.
If you happened to go through a losing gold streak and lost only 20 xauusd trades in a row, you would have gone from starting gold trading account balance of $50,000 to having only $6,750 left in your xauusd trading account if you risked 10% on each gold trade. You would have lost over 87.5% of your gold trading account equity.
However, if you risked only 2% you would have still had $34,055 in your gold trading account which is only a 32% loss of your total gold trading account equity. This is why it's best to use the 2% risk management strategy in xauusd trading.
The difference between risking 2% and 10% on a single gold trade is that if you risked 2% you would still have $34,055 in your gold trading account after 20 losing trades.
However, if you risked 10% you would only have $32,805 in your gold trading account after only 5 losing gold trades that is less than what you would have in your xauusd trading account if you risked only 2% of your xauusd trading account and lost all 20 gold trading transactions.
The point is that you want to setup your Risk Management in Trading Gold rules so that when you do have a loss making period, you will still have enough gold trading capital to trade next time.
If you lost 87.5% of your gold trading capital you would have to make 640% profit to get back to breakeven.
As compared to if you lost 32% of your gold trading capital you would have to make 47% profit to get back to the breakeven. To compare it with the gold example 47% is much easier to break even than 640% is.
The trading chart below shows what percentage you would have to make to get back to break even if you were to lose a certain percentage of your gold trading capital.
Concept of Break Even - Risk Management in XAUUSD Market Books
XAUUSD Account Equity and Break Even - Risk Management in XAUUSD Market PDF - Risk Management in XAUUSD Market Books
At 50% xauusd trading draw down, one would have to earn 100% on their invested gold trading capital - a feat accomplished by less than 5% of all gold traders worldwide - just to break even on a gold trading account with a 50% loss.
At 80% gold draw down, one must quadruple their gold trading equity just to bring it back to its original equity. This is what's known as to "breakeven" - which means - get back to your original gold trading account balance that you started with.
The more money you lose, the harder it is to make it back to your original gold trading account size.
This is why as a gold trader you should do everything you can to PROTECT your gold trading account equity. Do not accept to lose more than 2% of your gold trading account equity on any 1 single xauusd trade.
Gold Money management is about only risking a small percentage of your gold trading capital in each trade so that you can survive your losing streaks and avoid a large draw down on your xauusd trading account.
In gold trading, traders use stop loss orders which are put in order to minimize gold losses. Controlling risks in gold trading involves putting a stop loss order after placing an new xauusd trading order.
Effective Gold Risk Management
Effective gold trading risk management requires controlling all the risks in xauusd trading and a gold trader should come up with a money management xauusd trading system and a money management gold trading plan. To be in gold trading or any other business you must make decisions involving some risk. All gold trading factors should be analyzed to keep risk to a minimum and use the above gold money management tips on this learn gold lesson - Risk Management in XAUUSD Market Books.
Ask yourself? Some Gold Trading Tips
1. Can the gold risks to your gold trading activities be identified, what forms do they take? and are these clearly understood and planned for in your written gold trading plan? All the gold risks should be taken care of in your gold trading plan - written gold trading plan.
2. Do you grade the trading risks encountered by you when gold trading in a structured way? - Do you have a money management strategy and a gold trading plan? have you read about this learn gold trading lesson which is well covered and discussed here on this learn gold trading tutorial course for gold beginners.
3. Do you know the maximum potential trading risk of each exposure for each gold trade that you place?
4. Are gold trading decisions made on the basis of reliable and timely gold market information and based on a gold trading strategy or not? Have you read about gold trading systems on this learn gold trading course.
5. Are the gold risks large in relation to the trade turnover of your invested gold trading capital and what impact could they have on your gold profits margins and your gold trading account margin requirements?
6. Over what time periods do the gold trading risks of your gold trading activities exist? - Do you hold gold trading positions long term or short term? what type of gold trader are you?
7. Are the exposures in trading a one-off or are they recurring?
8. Do you know enough about the methods in which your gold trading risks can be reduced or hedged and what it would cost in terms of profit if you did not include these measures to reduce potential loss, and what impact it would make to any upside of your gold profit?
9. Have your gold money management guidelines been adequately addressed, to ensure that you make and keep your gold trading profits.
Risk Management in XAUUSD Market PDF - Risk Management in Gold Market Books - Risk Management in Gold Trading Books
