What are the Traditional Methods of XAUUSD Risk Management?
Gold Risk Management in Intraday Trading Guide
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 different xauusd risk management strategies discussed on this learn xauusd lesson site.
In xauusd online trading, the risks to be managed are potential losses. Using gold risk management guide-lines will not only protect your trading account but also make you profitable in the long run.
What's Draw Down in XAUUSD Trading?
As traders the number one risk in xauusd trading is also known as draw-down - this is the sum of money you have lost in your account on one trade.
If you have $10,000 capital and you make a loss in a single trade of $500, then your draw-down is $500 divided by $10,000 which is 5 percent trade draw down.
What's Maximum XAUUSD Draw Down?
This is the total sum of funds you have lost in your account before you start making profitable trades. For example, if you have $10,000 capital & make five consecutive losing trade positions with a total of $1,500 trade loss before making 10 winning trade transactions with a total of $4,000 profit. Then the draw-down is $1,500 divided by $10,000, which is 15% maximum trade draw down.
Gold Draw-Down is $442.82 (4.40%)
Max XAUUSD Draw Down is $1,499.39 (13.56%)
To learn how to generate above xauusd reports using MetaTrader 4 platform: Generate XAUUSD Reports on MT4 Guide - Gold Position Management Strategies - Risk Management Techniques in Trading XAUUSD
XAUUSD Risk Management in Intraday Trading Guide
The example illustrated and shown below shows the contrast between risking a small percentage of your capital compared to risking a higher percentage. Good Risk Management in Intraday Trading PDF principles requires you not to risk more than 2 % of your total account equity on any one single trade.
XAUUSD % Risk Method
2% & 10 percent Money Management Rule
There is a large contrast between risking 2 % of your xauusd account equity compared to risking 10 percent of your equity on one trade.
If you happened to go through a losing gold trading streak and lost only 20 trades in a row, you'd have gone from beginning account equity balance of $50,000 to only having $6,750 left in your ++2trading account if you risked ++3##10%10--% on each gold trade. You would have lost over 87.5% of your trading account equity.
However, if you only risked 2% you'd 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.
Difference between risking 2% and 10% on one trade is that if you risked 2% you would still have $34,055 in your trading account after 20 losing trades.
However, if you risked 10% you would only have $32,805 in your account after only 5 losing trade transactions that is less than what you would have in your account if you risked only 2% of your trading account and lost all 20 xauusd trades.
The point is that you want to setup your Risk Management in Intraday PDF 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 87.5% 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 capital you'd have to make 47% profit to get back to the break-even. To compare it with the trading examples 47% is a lot easier to break even than 640 % is.
The 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 percent of your xauusd capital.
Concept of Break-Even - XAUUSD Position Management Strategies Methods
XAUUSD Account Equity and Break Even - What are the Traditional Methods of XAUUSD Risk Management? - XAUUSD Position Management Strategies Methods
At 50% xauusd draw-down, one would have to earn 100% on their invested capital - a task accomplished by less than 5 % of all traders world-wide - just to breakeven on a account with a 50% loss.
At 80% draw down, one must quadruple their 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 account equity balance which you started with.
The more funds you lose, harder it's 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.
XAUUSD ##3++MoneyEquity Management is about only risking a small % of your capital in each trade so that you can survive your losing streaks ##2and avoid a large draw-down on your ##2account.
In xauusd trading, traders use stop orders which are put in order to minimize gold losses. Controlling risks in xauusd involves putting a stop loss after placing an new trade order.
Effective XAUUSD Money Management
Effective equity management requires controlling all the risks in xauusd & a trader should come up with a equity management system and a equity 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 equity management tips on this article - XAUUSD Position Management Strategies.
Ask yourself? Some Tips
1. Can the trade risks to your xauusd activities be identified, what forms do they take? ++3& are these clearly understood ++2& planned for in your plan? All the trade risks should be taken care of in your plan.
2. Do you grade the risks encountered by you when gold in a structured way? - Do you've a equity management strategy & a xauusd plan? have you read about this learn xauusd topic which is well explained here on this learn xauusd website for beginners.
3. Do you know the maximum potential risk of each exposure for each trade which you place?
4. Are trading decisions made on the basis of reliable and timely market data & based on a xauusd strategy or not? Have you read about xauusd systems on this learn gold website.
5. Are the trading risks large in relation to trade turnover of your invested capital ##2& what impact could they have on your trading profits margins ##2and your ++2trading account margin requirements?
6. Over what time periods do the risks of your gold activities exist? - Do you hold trade positions long term or short term? what type of trader are you?
7. Are the exposures in trading a one-off or they're recurring?
8. Do you know about the techniques in which your risks can be reduced or hedged ##2& what it would cost in terms of profit if you didn't include these measures to minimize the potential loss, ##3and what impact it would make to any upside of your trading profit?
9. Have your trading equity management guide-lines been addressed adequately, so as to ensure that you make & keep your profits.
