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Risk Mitigation

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I received an email today, with some excellent questions regarding risk, the SST and using the UTA (Ultimate Trade Analyzer) tool. I thought it touched upon an important subject so I figured I would share the conversation here.




1. Can you help me on what to input in the cell H1 if I'm using $800 capital with leverage of 50:1, and a .01 lot size? What value or point should I put using the EURGBP as the currency I'm trying to test?


For those of you who don't use or know the UTA, cell H1 is where you would determine the pip value for the trade data you log into the UTA.

2. In the setup type column, what is the meaning of OSOB and RE?




In response to your questions, I would first advise you to never use 50:1 leverage. Just because your broker allows it, doesn't mean you should. In fact, in most cases, you should not. With that being said, try to always keep your position size around the 2% of your available capital range. So if you have $800, you would not want to put on a trade that risked more than $16. That might not sound like a lot, but it is all relative. As your account grows, so will the 2% risk level.


Remember, Chris 'Jesus' Ferfuson turned $1 into $20,000 in two years, playing online poker tournaments. He did it by never risking more than 5% of his bankroll on any tournament. He did the math, and based on his skill level, and his estimate of how often he would make the money round on any given tournament, he decided that a 5% risk model would keep him in the game. And it did! His first tournament he entered had a 5 cent buy in price. He didn't raise that level until he doubled his bankroll to $2. Then he began entering 10 cent buy ins, etc, etc.. In two years he built his bankroll up to $20,000. This is the type of mindset you need if you want to succeed as a trader.


The SST gives you a serious edge. In fact, it's better than 50% by a long shot. Still though, we are recommending a 2% risk profile based on the average size loss over a period of 100 trades or more. What that means is that once you have over 100 trades entered into the UTA, you will be able to determine the average size loss and from that detail, determine the proper risk (2%) that you should put on a trade.


(I forgot to mention, that you would also need to convert the underlying currency of the forex pair into the currency of your trade account so that you could determine the proper pip value and thus, the proper lot size to stay within your 2% risk parameter.)



If you want to get a .01 lot value for each trade's wins and losses, first you have to decide if you will be using the decimal point or not. When I enter a trade into the UTA for forex, like the EURUSD for example, I don't want to enter a price 1.3318 for example. I like to just enter 3318. It saves me 2 key strokes on every price entry, which adds up to a lot of saved manual work for me. In this case, if a pip is worth 10 cents, I would enter .10 into H1. That way, each digit would gain or lose .10. Don't worry about multiple quantities when backtested with the UTA. It is not designed for that. Backtest as if each trade is 1 lot per position. If you want two positions, you have to enter two trades, one on each line. They would get the same date, dame time, same entry price but different exits and different SetupType labels.


As far as your 2nd question, OSOB (overbought/oversold) is what I used to label reversal trades and RE is what I used to label Reentry trades. You can edit those labels and use this powerful feature any way you like. With the SLV tradeplan I made available to the Live SST Workshop Attendees, I offered a variation where I used that labeling technique to label various targets instead of trade setup types. You can use it for anything you want, really. The benefit is that it will pull out specific sets of statistics which can really open up important insights and help you with your tradeplan.

There is a fine line between not enough risk and too much risk. Trading does involve risk. Without risk, we could never make money as a trader. Risk is an important part of trading, right? But how do we determine the appropriate amount of risk? This is always a question that befuddles traders. It's a razor's edge that doesn't stand still. One's risk exposure is as dynamic as the price movement itself.


The SST philosophy, which incidentally, was determined by extensive work with the UTA, is to cut risk as quickly as possible, while still giving a trade the space it needs to develop. In other words, it is handling risk in a dynamic way, constantly retuning its risk profile with the close of every new bar. Pretty cool, huh? Next, its goal is to eliminate risk altogether by getting our trade to a risk free position. In other words, at the strategic price level or strategic stage of the trade's development, it will move the stop to lock in a pip/tick or few. It is trying to mitigate risk by skirting the fickle razor's edge line between too much risk and not enough risk. It is not 100% perfect. Nothing is. But it definitely puts the statistical edge on our side and really, that's all we can ask for as traders. That IS, the holy grail, by the way.. Harnessing risk so that it works for you on most trades but also being able to control it, when it works against you.


While doing that, it also calculates a fixed target, dynamically based on the current trade setup, that has a high likelihood of being reached. Sometimes that fixed target is too small and would cut short the overall potential of the trade. The SST answers that problem by allowing us to keep a seperate position on, incorporating its trailing stop techniques. That way, we are able to strike a great balance between not enough risk, too much risk, and a great chance of having just the right amount of risk from a trade profile perspective. It elegantly takes into account the 7 keys to successful trading, or as we call it, the 7 summits, tying together dynamic trade profiles, the dynamic ability to apply the strategy on multiple markets and timeframes, the ability to scale position size in and out of trades, the ability to trail while also being able to exit at high percentage fixed targets that have been dynamically tuned to the current market condition, capital preservation and consistent profits.


As traders, the rest is up to us. It is the trader who shoots himself in the foot by putting on too much risk on any given trade. It is the trader who makes decisions that are outside the realm of the tradeplan or the methodology of the trade system. We have the tools. The UTA can be used to determine the 'soundness' of a tradeplan and to build your confidence to the point where your vision is broad enough to believe in the tradeplan and methodology. Once you have that belief, you can responsibly put on the proper risk, and trade the system as it is intended. Thus, you can achieve the statistical edge that the SST gives you and grow your account accordingly, as you facilitate the tradeplan with confidence and professionalism.

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Hi, TJ, one of your new students here ;) - can you guess who?


Anyway, if my futures trading account is $3000, then my max risk is $60. Does that mean I only take the setups where the stop is less than $60? How will that affect the whole system?

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Sorry for the delay in responding to your question. I haven't visited TL in a while. The SST is so dynamic and one of the things that make it as effective as it is, is the ability to place the stops in locations that allow the trade the room necessary to develop the way it needs to. It then seeks to cut risk asap, and ultimately put you in a risk free position as soon as the price action permits. So.. with that in mind, I always look at the size of the avg losing trade to determine the correct position size, not the starting risk level. It is very rare that the SST will stop out with a full loss, although once in a while, it will happen. Remember though, the SST is quick to recover too.


It really pays to use the UTA and do a good amount of manual backtesting, so that you can develop a good win/loss column and experience the trades that way, first. You will then see the avg losing trade and it will help you determine the proper risk level for you. That's what I always call, the 'ditch digging' of trading. Those that take the time to go through such an excercise, will lay a good strong foundation that will help you succeed when you begin trading for rea.


Hope that helps.. Great question!

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    • Benjamin A. Rogge
    • Date : 16th August 2018.

      MACRO EVENTS & NEWS OF 16th August 2018.

      FX News Today

      Asian Market Wrap: 10-year Treasury yields are up 1.8 bp at 2.880%, 10-year JGBs up 0.7 bp at 0.094% as of 05:35GMT, as stocks move up from early lows on trade talk hopes. Asian sold off early in the session amid concerns over global growth and particularly China, after a Sino-related tech slump saw Wall Street heading south yesterday. Reports that China and the US are preparing a low level round helped to put a floor under markets, however, and mainland China bourses managed to move higher, while other indices are up from early lows. Topix and Nikkei are down -0.78% and -0.21% respectively. The Hang Seng is still down -0.395, but CSI 300 and Shanghai Comp are now up 0.61% and -0.20% respectively. The Kospi slumped -0.87% after returning from holiday and the ASX 200 is down -0.035. Meanwhile, US futures are moving higher with Chinese markets. Oil prices are slightly up from lows and the September US oil future is trading at USD 65.10 per barrel.

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      Always trade with strict risk management. Your capital is the single most important aspect of your trading business.

      Please note that times displayed based on local time zone and are from time of writing this report.

      Click HERE to access the full HotForex Economic calendar.

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      Market Analyst

      Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.
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