Not a lot of people talk about risk allocation and this topic is mostly neglected by traders. Rarely talked but a very important topic, risk allocation is your tool to risk management. It can help increase your gains as it reduces the drawdowns once you get used to it. All of these good things are made possible without even adjusting your original trading strategy.
Risk allocation is the risk you allocate over a certain idea or the trade itself. Traders tend to simply take a trade then risk some 2%, that’s all. Why 2%? Because it is the one they are told about.
Allocating Risks in a More Efficient Way
The best way to maximize your profits through the help of risk allocation is to produce a trading journal. You must input each trade you take, every single day. As much as possible, you should put in your journal all the kinds of parameters available for each trade. The point of journaling is finding the one that works and the one that doesn’t. This is the best way to connect all your winning trades from the ones where you had the losing end.
For instance, you found out that out of the 100 trades that you did, only 70% are wins and the rest are losses, you can easily detect the common things that you did during those wins. Surely, this will help you increase your gains massively.
Adjusting Your Risks
Adjustments can be made as long as you keep in mind that the sample size isn’t big enough. This means you don’t adjust your risks based on the last 5 trades that you did. You need to go over the data you had a couple of years back. There are no specific rules about this matter, it all depends on the style of trading such as swing trading, day trading, position trading, or forex trading.
You can take on more risks on the one that possesses better expectancy but risks less on lower expectancy. You don’t need to change anything about how you trade in the market. The equity curve changes its way positively. That should be your goal.
The Bottom Line
If you are not into journaling, try to do it for the sake of fruitful trading. Take some time to write your progress and even your failures. This is the best way for you to look back on your past mistakes and correct them on your future trades. Only a handful of people do this kind of trading and they are the successful ones.
For short, the best way to succeed is to learn from your past mistakes in forex Trading. Without a journal, you can’t check your mistakes and reflect on it so you can do better on your next trade. You must analyze your previous trades and look for the ones that greatly affect your wins. Calculate the strike rate, the expectancy differences, and the payouts. Get these numbers properly. Dig deeper and find the best moves to instill in your trading plan.