In the scalp trade, risk is comprised of two components: position size and wait time. The larger the size of your position, the greater the risk you will take. If your big position falls below, your losses will add up quickly. The longer you hold a position, the greater the risk you will take.
While no one wants to lose 1% of their account balance for a single investment idea, it's also beneficial to review the maximum exposure you have for your TOTAL account balance. The 5% rule reminds resellers that they should never risk more than 5% of their total account balance on all trades. I also recommend it as a final cutoff point for trading. In other words, if you lose more than 5% in a day, it's probably better to quit and try to resume trading when the market is more favorable.
We recommend that you seek independent advice and ensure that you fully understand the risks involved before trading. Leveraged operations in foreign currency or OTC products with margin carry significant risk and may not be suitable for all investors. Therefore, the National Institute for Occupational Safety and Health (NIOSH) seeks the help of county extension agents, editors of specialized journals, agricultural associations, and equipment manufacturers to bring these recommendations to the attention of farm owners, workers, and at-risk family members. Deciding how to manage risk can have a big impact on your account results, rather than deciding where your entry orders should go or even in what time frame to trade.
With scalping, you have to take advantage of large numbers of trades to generate enough profits; for some traders, it's not worth the risk of generating only small profits. With scalping, traders quickly make a lot of small profits to minimize risk, which means that, if they're looking for small profits, they can lose big profits. Since currency scalping is a method of trading currencies that is characterized by being so fast and laborious, unfortunately this method comes with a series of unique risks that are worth considering before starting out. This means that traders should never risk more than 1% of their account balance on a single trading idea.
That's why it's always important to have an action plan to manage risk before starting a trade.