Trading Gold Risk Management & XAUUSD Money Management Strategies

Trading Gold Risk Management Strategies

In any business, so as to make profit a trader must learn how to manage risks. To make profits in trading gold you need to learn about the various gold trading money management strategies discussed on this learn trading gold tutorial web site.

When it comes to gold trading, the risks to be managed are potential losses. Using gold risk management rules will not only protect your gold trading account but also make you profitable in long run.

What's DrawDown in XAUUSD Trading?

As gold traders the number one risk in trading xauusd trading is also known as draw-down - this is the amount of money you've lost in your xauusd trading account on a single xauusd trade.

If you have $10,000 gold capital & you make a gold loss in a single gold trade of $500, then your gold drawdown is $500 divided by $10,000 which is 5% xauusd trading draw down.

What is Maximum Gold Trading Draw Down?

This is the total amount of money you've lost in your xauusd trading account before you begin making profitable xauusd trades. For examples if you have $10,000 in trading gold capital & make 5 consecutive losing gold trades with a total of $1,500 gold loss before making 10 winning xauusd trades with a total of $4,000 gold profit. Then the gold drawdown is $1,500 divided by $10,000, which is 15% maximum xauusd trading draw down.

Gold Draw Down is $442.82 (4.40%)

Maximum Gold Draw Down is $1,499.39 (13.56%)

To learn how to generate the above in trading gold reports using MT4 gold platform: Generate Gold Trading Reports on MetaTrader 4 Guide - Draw-Down Gold Risk Management Calculator

Trading XAUUSD Risk Management Strategies

The in trading gold example illustrated & described below shows the difference between risking a small percent of your gold trading capital compared to risking a higher percentage. Good Trading Gold Risk Management Strategies principles requires you as a trader not to risk more than 2% of your total gold account equity on any one single xauusd trade.

Gold Percentage Risk Technique

2% & 10% Gold Money Management Rule - Trading Gold Risk Management Strategies

There's a big difference between risking 2% of your gold account equity compared to risking 10% of your equity on a single xauusd trade.

If you happened to go through a losing gold streak & lost only 20 xauusd trades in a row, you would have gone from starting gold trading account balance of $50,000 to having only $6,750 left in your xauusd trading account if you risked 10% on each gold trade. You would have lost over 87.5% of your gold trading account equity.

However, if you risked only 2 % you would have still had $34,055 in your gold account which is only a 32% loss of your total gold trading account equity. This is why it is best to use 2% risk management strategy in trading gold.

The difference between risking 2% & 10% on a single gold trade is that if you risked 2% you would still have $34,055 in your gold trading account after 20 losing trades.

However, if you risked 10 % you would only have $32,805 in your gold trading account after only 5 losing gold trades that's less than what you would have in your xauusd trading account if you risked only 2% of your xauusd trading account & lost all 20 gold trade transactions.

The point is you want to setup your Trading Gold Risk Management Strategies rules so that when you do have a loss making period, you'll still have enough in trading gold capital to trade next time.

If you lost 87.5% of your in trading gold capital you would have to make 640% profit to get back to breakeven.

As compared to if you lost 32 % of your in trading gold capital you would have to make 47 % profit to get back to the break-even. To compare it with the gold examples 47% is much easier to break-even than 640 % is.

The trading chart below shows what percentage you would have to make in order to get back to breakeven if you were to lose a certain percentage of your in trading xauusd trading capital.

Concept of Break Even - Draw Down Gold Risk Management Chart

XAUUSD Account Equity & Break Even - Trading Gold Risk Management & XAUUSD Money Management Methods - Draw Down Gold Risk Management Chart

At 50% xauusd trading draw-down, one would have to earn 100 % on their invested gold capital - a feat accomplished by less than 5% of all gold traders worldwide - just to breakeven on a gold trading account with a 50% loss.

At 80% gold draw down, one must quadruple their gold trading equity just to bring it back to its original equity. This is what is referred to as to "break-even" - which means - get back to your original gold trading account balance which you started with.

The more money you lose, harder it is to make it back to your original gold trading account size.

This is why as a trader you should do everything you can to PROTECT your gold trading account equity. Do not accept to lose more than 2% of your gold trading account equity on any 1 single xauusd trade.

Gold Money management is about only risking a small percent of your gold capital in each trade so that you can survive your losing streaks & avoid a large draw down on your xauusd trading account.

In trading gold, traders use stop loss orders which are put in order to minimize gold losses. Controlling risks in trading gold involves putting a stoploss order after placing an new xauusd trading order.

Effective Gold Risk Management

Effective in trading gold risk management requires controlling all the risks in trading gold and a trader should create a money management gold system and a money management in trading gold plan. To be in trading gold or any other business you must make decisions involving some risk. All in trading gold factors should be interpreted to keep risk to a minimum & use above gold money management tips on this article - Draw Down Gold Risk Management Chart.

Ask yourself? Some Gold Trading Tips

1. Can the gold risks to your in trading gold activities be identified, what forms do they take? and are these clearly understood and planned for in your in trading gold plan? All the gold risks should be taken care of in your in trading gold plan.

2. Do you grade the trading risks encountered by you when in trading gold in a structured way? - Do you have a money management strategy and a in trading gold plan? have you read about this learn in trading gold topic which is well covered explained here on this learn trading gold website for beginner traders.

3. Do you know the maximum potential risk of each exposure for each trade that you place?

4. Are trading decisions made on the basis of reliable & timely gold market data & based on a in trading gold strategy or not? Have you read about in gold systems on this learn gold web site.

5. Are the gold risks large in relation to the trade turnover of your invested gold capital & what impact could they have on your gold profits margins and your gold account margin requirements?

6. Over what time periods do the in trading gold risks of your in trading gold activities exist? - Do you hold in trading gold trades longterm or shortterm? what type of gold trader are you?

7. Are the exposures in trading a one off or they are recurring?

8. Do you know enough about techniques in which trading gold risks can be reduced or hedged and what it would cost in terms of profit if you did not include these measures to reduce potential loss, and what impact would it make to any upside of your gold profit?

9. Have your gold money management guidelines been adequately addressed, to ensure that you make and keep your in trading gold profits.

Trading Gold Risk Management & Gold Trading Money Management Strategies Methods - Draw Down Gold Trading Risk Management Chart - Draw Down Gold Trading Risk Management Calculation