I
n another example, it is Oct. 12th and I am a trend follower. I want to enter on currency strength when I see a new uptrend forming as price approaches a new high at 1.2575
n another example, it is Oct. 12th and I am a trend follower. I want to enter on currency strength when I see a new uptrend forming as price approaches a new high at 1.2575
Let's assume that from looking at support levels beforehand I made the conclusion to place my stop somewhere around 1.2480, which is a difference of around 100 pips.
If I have a $20,000 account and my exposure per trade is 5%, I can risk $1000 on a given trade. If I prefer to open 1 Lot positions, the 100 pip difference from where I want to open my trade to the stop fits with my 5% requirement. Therefore, the amount from 1.2575 to 1.2480 is now considered my risk after opening the position.
As long as price stays within the 100 pip risk zone, it will be considered noise. If the pair moves to 1.2480, my original analysis was wrong and the stop loss order I placed earlier should close my position.
How to size one's position ties into exposure per trade and will be discussed on the next page, along with what happens next to the "new uptrend".