Evaluate Risk before Placing a Trade

Every Valid Trade Signal tells you it’s’ time to make a trade. But it is the individual trader that determines the overall position through their own situation awareness that tells them how many contracts to buy (if any).

The overall situation that determines what you will risk on a trade is numerous and takes time to learn. You can have a high percentage of winning trades and still not make money if you don’t manage your money and trades correctly. Trading is NOT about what you can win, but more about what you are risking versus the reward.

Here are a few beginning tips in making trade risk assessments that help you successfully modify your trading Gain Limits to Stop Loss ratios before entering a trade.

Always start evaluating your risk as the trade signals are coming in. Know the answer of your risk levels (Gain trade Limits and Stop Losses) BEFORE you are ready to make the trade. Seconds count!

Basic Situational Risk Evaluation Elements

Look for confluence, and trade what you see.  Is everything you see telling you the same story or are there conflicting elements, For example, the Short-term EMA and Long-term EMA may be indicating different directions. Make sure nothing is telling you not to take any risk on the trade.

Where is the Trade Price in relation to the lowest or highest price in the direction of the trade for that day or trading session?

  •  Where are the Support and Resistance levels?
  •  Are you trading a retracement or a longer-term trend?
  •  Where are you time-wise? Is the market about to close? Do you have an appointment that will interrupt your trade?
  •  Has a critical Fibonacci level been reached?
  • What kind of other statistical indicators are you looking at and what are they telling you about the history or price waves?

Placing a Trade

  •  Identify a setup or trade signal
  •  Evaluate Risk VS Reward to know your trading amount, gain limit, stop loss
  •  Be sure to automatically set the Gain Limit and Stop Loss at time of trade