Understanding risk on a trade

Alan Solosh here, the passive income guru in this video tutorial explains to you how to work out at the risk on a specific trade that you take.

Right? So a lot of people just enter the trade without having to understand what the risk is of that trade. So you, you enter a trade as we've entered over here, so we've got a buy position, We've got a 30 lot open buy position over here. Now I want to know what the risk is of this trade if this trade goes south. So how you do that? Very clever. Before we do that, let's just work out like a.

A resistance or a support level if this trade does go south. So let's just draw a line and then we're going to click on the horizontal properties and we're going to make this into a big fat red line so that you can see it and we can drag this line. So if we, if let's say we entered the trade over here and the price comes down all the way to 1934, I want to know how much my drawdown is going to be on that specific trade. So what you do is, is that you log into your MT4 on your computer, you can't do this on your phone and you right click it and you say modify order. And then over here where it says stop loss, you put your 1934 and the price point 77. So it's this price over here. So let me just drag this over here so you can see at 1934 77, it's exactly the same price over, over there and you say modified order and the stop loss would have been created for this, for this trade over here. Okay, so what I want to do now is if I move this red line away, you can see the stop losses over there. Now if I hover my mouse over this line, you'll see there that a little drop down menu appears and it tells me what the profit is or what the loss is. And the loss is $71,370 which is about 70% of my account. So that doesn't suit me. So if this thing goes south to over here, then I'm going to be in a bit of trouble. Okay? So that would not suit me. So what I would need to do is I would need to then mitigate the risk by finding a suitable position to open a, let's say hedge trade if this thing did go south. So where would I open a hedge trade if this thing did go south? So if we, if we take the red line.

And you just like draw it up over here to let's say 1943. Now what you can do is you can left mouse click down on the yellow line and you can drag it okay to that line and they'll come up with a window. If you want to do that, you just click OK and you'll see that the price has changed to 1934. No it hasn't. So we have to do it again. Let's do that again. Drag it up. Right, there we go. And the take the stop loss has changed to 1943. If we move this away, you'll see that this, the stop loss is there. And if we mouse over the stop loss, we can now see.

What the, what the, the drop down says. And it's halved. It's now 40, 46,230. So it's almost halved by 40% or or so. So the drawdown now is 46,230, which is about 46% of my account. So if that's suitable for you, then that's where you, you would then put your stop loss or your hedge trade. I don't put stop losses in, I like to not trade with stop losses. But the whole exercise of this video is to show with you how to work out what the risk is of a trade. So trading with a 30 lot with this size account is obviously poor management, poor wallet management. And you wouldn't be able to sustain much of a drop if the trade goes against. I mean maybe according to my lessons, you know that the second candle, you need to wait for the second candle to open below the 8 exponential moving average. So I mean the first candle could open, then the second candle could open right on the 200 and then you're down 70% on your account and then that is the only time you would open up your hedge trade. So that would be poor wallet management. So I hope that you enjoyed this video. I know it's a little bit complicated, so if you didn't understand it, please rewind the video and re watch the video until you fully understand it. Maybe place a couple of trades on demo, put in a stop loss so that you can then understand what I'm trying to explain in this video and then you'll start getting the concept. So I hope you enjoyed this video. Please, if you did enjoy this video, give me a thumbs up on YouTube. Also subscribe to my channel so that you can get further updates and also please leave a comment so that it helps the YouTube algorithm and should, you know, help other traders as well. So please do that, and then I'll see you on my next videos.