The ChoosaBroker Trading Academy

13.5. Risk Management with MT4

Risk management as a concept is the first thing about which beginner traders are coached, and it’s the first thing they choose to ignore. No matter how much emphasis the pros attach to risk management, the new trader is too easily deflected by the lure of seemingly limitless profits. Ignoring risk management is an instant recipe for trading disaster. You can’t go in to a battle without your shields down!

Risk management is no rocket science. It’s just a matter of employing some basic maths to your trading strategy. At the core of potent risk management lay two broad strategies – correct position sizing and setting stop losses. Through this lesson, we will learn about:

Risk Management Tools in MetaTrader 4

  • Position Sizing – How big or small your each trade should be must not be a random decision. Set a percent amount of your total trading capital that you are willing and comfortable to risk on any given trade. A large number of successful traders choose to risk not more than 1% on each trade. By doing so they ensure that in the event of their trade not working out they stand to lose only 1%, with the remaining 99% of the capital remaining intact to capitalize on future opportunities. In this way, even if there were a series of losses, the trader isn’t completely thrown out of the game. Some traders with proven strategies may risk up to 2%. But if you’re just starting out and have yet to establish a proven track record, stick to the 1% rule.
Stop Loss & Take Profit – “Stop Loss” and “Take Profit” are two important trade management tools available with MT4. A stop loss is defined as an order to your broker directing them to limit the extent of loss on any open position. Take profit is an order that you send to the broker dictating them to close a trade once a target price has been reached. It is important to note that stop loss and take profit are static levels. These orders will get triggered only when the underlying asset hits a pre-defined price. However, in case of stop loss, the execution price may not exactly be what you entered, but just the next best fill after the levels have been breached. For example, if you initiated a BUY order on USDJPY at 107.100 and placed a “Stop Loss” at 106.800 and “Take Profit” of 107.900, when the pair dips below your entry and hits 106.800 your trade is closed for a loss of 30 pips. Contrarily, when the pair climbs to 107.900, your trade is squared-off for a profit of 80 pips.
The quickest method to add “Stop Loss” & “Take Profit” is by doing it right away when you place a new order on MT4.

Setting Alerts with MT4 – The “Alerts” tab on the “Terminal” section of MT4 can be a handy risk management tool. The alerts are intended for signalling about price events in the market by playing a sound, running a file or sending an email. Having created an alert, a trader may leave the trading platform as the client terminal will automatically notify about the server event. To create an alert, we first need to open the “Terminal” on MT4 by simultaneously pressing “CTRL” and “T” on the computer keyboard. Once the Terminal is open, we next right-click on the pane and select “Create” to add an alert. The Alert Editor window should open, as shown in the figure below. To set a new alert, we will need to define all the requisite conditions:

  • Enable – Check the box to create the alert.
  • Action – From the drop down list, assign an action like Sound, File or Mail that will take place if the alert criterion is met.
  • Symbol – Choose the underlying asset for which the alert is intended.
  • Condition – Specify the appropriate price alert condition like a stop loss level or a target price.
  • OK – Finally, click OK when all the inputs are set to your satisfaction.

It’s worth noting that although many brokers offer their own in-house developed trading platforms, most also offer the well established and well known Mt4 platform. 

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