Risk Management in XAUUSD Market Tutorial

Risk Management in Gold Trading

In any business, in order to make profit a trader must learn how to manage risks. To make profits in xauusd you need to learn about the various xauusd money management strategies discussed on this learn xauusd guide web site.

When it comes to xauusd online trading, the risks to be managed are potential losses. Using xauusd trading risk management rules will not only protect your xauusd account but also make you profitable in the long run.

What's Draw Down in XAUUSD Trading?

As xauusd traders the number one risk in gold trading is also known as draw-down - this is the amount of money you have lost in your gold trading account on a single gold trade.

If you have $10,000 xauusd capital and you make a loss in a single xauusd trade of $500, then your xauusd drawdown is $500 divided by $10,000 which is 5% gold trading draw down.

What's Maximum Gold Draw Down?

This is the total amount of money you have lost in your gold trading account before you begin making profitable gold trades. For examples if you have $10,000 xauusd capital and make 5 consecutive losing xauusd trade positions with a total of $1,500 loss before making 10 winning gold trades with a total of $4,000 profit. Then the xauusd drawdown is $1,500 divided by $10,000, which is 15% maximum gold trading draw down.

XAUUSD Draw Down is $442.82 (4.40%)

Maximum XAUUSD Draw Down is $1,499.39 (13.56%)

To learn how to generate the above xauusd reports using MetaTrader 4 xauusd trading platform: Generate XAUUSD Reports on MT4 Tutorial - Risk Management in XAUUSD Books

Risk Management in XAUUSD Trading

The xauusd example illustrated and shown below shows the difference between risking a small percentage of your xauusd capital compared to risking a higher percent. Good Risk Management in XAUUSD Trading principles requires you as a trader not to risk more than 2% of your total xauusd account equity on any one single gold trade.

XAUUSD Trading Percentage Risk Method

2% and 10% Gold Money Management Rule - Risk Management in XAUUSD Trading

There is a big difference between risking 2% of your xauusd account equity compared to risking 10% of your equity on a single gold trade.

If you happened to go through a losing xauusd trading streak and lost only 20 gold trades in a row, you would have gone from starting xauusd account balance of $50,000 to having only $6,750 left in your xauusd account if you risked 10 % on each xauusd trade. You would have lost over 87.50% of your xauusd account equity.

However, if you risked only 2% you would have still had $34,055 in your xauusd account which is only a 32% loss of your total xauusd account equity. This is why it is best to use 2% risk management strategy in xauusd.

Difference between risking 2 % and 10 % on a single xauusd trade is that if you risked 2 % you would still have $34,055 in your xauusd account after 20 losing trades.

However, if you risked 10% you would only have $32,805 in your xauusd account after only 5 losing xauusd trades that is less than what you would have in your xauusd account if you risked only 2 % of your xauusd account & lost all 20 xauusd transactions.

The point is that you want to setup your Risk Management in XAUUSD Trading rules so that when you do have a loss making period, you will still have enough xauusd capital to trade next time.

If you lost 87.50% of your xauusd capital you would have to make 640% profit to get back to breakeven.

As compared to if you lost 32 % of your xauusd capital you would have to make 47% profit to get back to the break-even. To compare it with the xauusd trading examples 47% is a lot easier to break even than 640 % is.

The trading chart below shows what percentage you would have to make so that as a trader you can 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 Trading Market Books

XAUUSD Account Equity and Break Even - Risk Management in XAUUSD Trading Market Books

At 50% gold draw-down, one would have to earn 100% on their invested xauusd capital - a feat accomplished by less than 5% of all xauusd traders worldwide - just to breakeven on a xauusd account with a 50% loss.

At 80% xauusd draw down, one must quadruple their xauusd equity just to bring it back to the original equity. This is what is known as to "breakeven" - which means - get back to your original xauusd account balance which you started with.

The more money you lose, harder it's to make it back to your original xauusd account size.

This is why as a trader you should do everything you can to PROTECT your xauusd account equity. Do not accept to lose more than 2% of your xauusd account equity on any 1 single gold trade.

XAUUSD Trading Money Management is about only risking a small percent of your xauusd capital in each trade so that you can survive your losing streaks and avoid a big draw-down on your gold trading account.

In xauusd trading, traders use stop loss orders which are put in order to minimize xauusd trading losses. Controlling risks in xauusd involves putting a stoploss order after placing an new gold trading order.

Effective Gold Trading Risk Management

Effective xauusd risk management requires controlling all the risks in xauusd and a trader should come up with a money management xauusd system & a money management xauusd plan. To be in xauusd or any other business you must make decisions involving some risk. All xauusd factors should be interpreted to keep risk to a minimum & use above xauusd trading money management tips on this learn xauusd trading lesson - Risk Management in XAUUSD Trading Market Books.

Ask yourself? Some XAUUSD Tips

1. Can the xauusd trading risks to your xauusd activities be identified, what forms do they take? and are these clearly understood and planned for in your written xauusd plan? All the xauusd trading risks should be taken care of in your xauusd plan - written xauusd plan.

2. Do you grade the trading risks encountered by you when xauusd in a structured way? - Do you've a money management strategy & a xauusd plan? have you read about this learn xauusd lesson which is well covered and discussed here on this learn xauusd tutorial tutorial for beginners.

3. Do you know the maximum potential risk of each exposure for each trade that you place?

4. Are xauusd decisions made on the basis of reliable & timely xauusd market data & based on a xauusd strategy or not? Have you read about xauusd systems on this learn xauusd course.

5. Are the xauusd trading risks large in relation to trade turnover of your invested xauusd capital & what impact could they have on your xauusd trading profits margins & your xauusd account margin requirements?

6. Over what time periods do the xauusd risks of your xauusd activities exist? - Do you hold xauusd trade positions long term or short term? what type of xauusd trader are you?

7. Are the exposures in trading a one-off or they are recurring?

8. Do you know about the methods in which your xauusd risks can be reduced or hedged & what it would cost in terms of profit if you didn't include these measures to reduce potential loss, & what impact it would make to any upside of your xauusd trading profit?

9. Have your xauusd trading money management rules been addressed adequately, so as to ensure that you make and keep your xauusd profits.

Risk Management in XAUUSD Market PDF - Risk Management in XAUUSD Trading Market Books - Risk Management in XAUUSD Books