Are You Risking Too Much, How To Make Money Trading Forex, Understand The Average True Range (ATR)

Happy Sunday,

Welcome to this week’s edition! We’ve packed it with valuable insights to help you on your trading journey. This week, we’re tackling risk management to ensure you’re not overexposing your trades, breaking down how to make money in forex with smart strategies, and diving into the Average True Range (ATR) to help you measure market volatility like a pro. Let’s dive in and take your trading skills to the next level!

This week’s edition:

🧠 Are You Risking Too Much?

📈 How to Make Money Trading Forex

🚀 Understanding the Average True Range (ATR)

Proper position sizing is one of the most critical skills every trader must master. It’s the foundation of risk management and determines whether you stay in the game or blow up your account.

What is Position Sizing?

Simply put, position sizing is about choosing the right amount of units to buy or sell to ensure you stay within your risk comfort zone.

Why is it Important?

Without proper position sizing, you might risk too much on a trade. Sure, bigger bets can lead to bigger wins—but also bigger losses. A few pips in the wrong direction can wipe out your capital if your position is too large.

How to Avoid Risking Too Much

1️⃣ Understand Your Risk Behaviour

Many traders bet big because they associate massive wins with self-worth. The excitement of potential profits can cloud judgment, leading to emotional trading. Recognizing this behaviour is the first step to fixing it.

2️⃣ Know Your Limits

Every trader has a different risk tolerance—some thrive on high stakes, while others prefer a cautious approach. There’s no universal rule, but a good starting point is risking a small percentage of your account per trade. Adjust your position size based on what you can comfortably lose without emotional distress.

The Key to Success

Many traders focus only on entries and exits, but risk management separates winners from losers. Mastering position sizing ensures you stay in control, trade with confidence, and avoid emotional decision-making.

Trading isn’t about taking huge risks—it’s about consistently managing them for long-term success!

Forex trading involves speculating on currency price movements. The goal? Buy low, sell high—or sell high, buy low—to make a profit. Let’s break down how it works.

How Forex Trading Works

Currencies are traded in pairs (e.g., EUR/USD), meaning you’re always buying one currency while selling another. The exchange rate represents how much of the quote currency is needed to buy one unit of the base currency.

For example, if EUR/USD = 1.1800, it means 1 euro costs 1.18 U.S. dollars. If the rate rises to 1.2500, and you exchange back, you’ve made a profit.

Buying & Selling (Long vs. Short Positions)

• Going Long (Buy): You buy a currency pair expecting the base currency to increase in value.

• Going Short (Sell): You sell a currency pair expecting the base currency to decrease in value.

If you don’t have an open trade, you are considered flat or square in the market.

Understanding Bid, Ask & Spread

How to Trade Successfully

Forex trading requires a solid strategy, risk management, and market analysis. Whether you use technical indicators, fundamental analysis, or both, the key to success is understanding how the market moves and making informed trading decisions.

Start small, manage risk, and refine your skills—consistency leads to profits!

The Average True Range (ATR) is a technical indicator that measures market volatility, not trend direction. Developed by Welles Wilder, ATR helps traders understand how much price typically moves within a given time frame.

How ATR Works

ATR values rise when price movements are large and rapid, signaling high volatility. On the other hand, ATR values decrease when price movements slow, indicating a low-volatility market.

How to Use ATR in Trading

• Higher ATR → Greater price fluctuations, possible trend changes

• Lower ATR → Weaker price movement, consolidation phases

Since ATR only measures volatility, traders often pair it with other indicators (like ADX or Moving Averages) to confirm trade signals.

How is ATR Calculated?

ATR is based on the True Range (TR), which is the largest of these three calculations:
✔ Today’s high - low
✔ Absolute value of today’s high - yesterday’s close
✔ Absolute value of today’s low - yesterday’s close

Once the True Range is calculated, ATR is plotted as a moving average of the True Range, usually over 14 periods.

Why ATR Matters

Understanding volatility can help traders:
✅ Adjust stop-loss levels to avoid premature exits
✅ Identify high-risk, high-reward opportunities
✅ Avoid trading in low-volatility markets

While ATR won’t tell you which direction the market will move, it helps gauge the risk level of a trade. Use it wisely to enhance your strategy and manage risk effectively!