Understanding Exposure in Trading – Price Action Traders Mindset Part 12

Understanding exposure is another important element in trading. The reason being is if not understood right can mean that a trader can be taking excessive risk when pairs correlate and give multiple signals at the same time. Firstly do you know what exposure is in Trading? If not, that is okay let me explain it for you more..

What is Exposure Exactly?

Exposure is the principle risk a trader takes when opening multiple signals or trades in there account before the management phase. It is a name used to describe the risk that a trader is taking, whether it be two trades or five. Now, while this may seem like a normal concept there are aspects to consider when active trades go beyond a certain point.  To describe it in detail let’s take a look at if there were more than 2 trade signals available in the market at the same time. In this example let’s say they are all correlated. Say a buy signal on EURUSD, a buy signal on GBPUSD, a buy signal on AUDUSD and lastly a buy signal on NZDUSD..

So now here is the question, do you take them all or do you consider exposure in the equation?

If so, let me explain why you should not take all the trades at the same time and why you should limit exposure to 2 ( recommended ) signals at a time before management phase.. The reason being is each one applies risk to a account and each one is correlated with the US dollar value. Because of that reason it means it is possible if US dollar increases in strength for some reason unexpectedly that one could lose all trades because of that one factor.

exposure in trading

Now that is not to say us as traders cannot have many open trades open at a time, however limiting the trades before a management phase is recommended. Also that does not mean that a trader cannot have 5 or 6 or even more trades active and not have exposure in check either. The reason being is once a trade is locked in and risk free ( breakeven ) during the management phase then that trade signal is seen as going from whatever risk level you had set to a zero level exposure risk level. Meaning now that trade has no exposure.

In the instance of a 2% risk trade signal that would mean going from 2% exposure to 0% exposure once the risk free aspect of your trade management has been activated.

– As an example, once a trade you are managing is at breakeven or once a trade has taken off half or more partial profits beyond a 2 to 1 risk to reward phase, then it has no exposure ( no risk of loss on remaining held position ). These types of open positions can then be ignored when evaluating exposure on the account.

Above Video – Understanding Exposure in Trading. In the video above I explain it in even more detail and break down the terms and concepts to be aware of as well.

engulfing trader package

Overall and to summarize, by keeping your exposure low, controlled and by managing your risk in the right way ( money management ), it can help protect a trader from unexpected excessive losses.

Are You Looking for Forex Training?

Are you looking for more Forex Training or ways to improve your profitability in Trading? If so, I would highly recommend checking out The Engulfing Trader Training Series and The 5 Day Trend Training Series, both series focused on high probability Forex Training and improving you as a trader overall. To find out more about these two training series click the links below or above.

About Timon Weller

Timon Weller is the professional Trader behind the blog Forex Reviews as well as a Teacher of Price Action Trading and creator of the popular Training Series teaching people how to trade Price Action effectively called The Engulfing Trader. For other Forex Training available here at Forex Reviews click here.

For more on Timon Weller Click Here. To Learn more about How to Trade the Market and get updates Click Here.


  1. Hi Timon!

    Thanks for another great video. I’d been entangled in this kind of situation many times before. This is really a very good advice of not exposing ourselves to such a huge risk. Be Disciplined and have Belief!

  2. Brandon says:

    Hey Timon,

    Thanks for this video. I was wondering however if you would ever take simultaneous positions in correlated pairs? Say the AUD/USD and the EUR/AUD are both showing nice price action on the same day and I had no other positions on, would you take both positions? Is that ever a good idea? Thanks for all your hard work!

    • Hey Brandon,
      Yeah, you are referring to a buy on AUDUSD and a sell on EURAUD, this is a good example of correlation and exposure and this relates totally to the video completely, so in that view you would be in much of an essence a correlation as the topic goes over. Taking both trades exposes you to around 4% risk of the account if each signal is 2% used of your account.. In the video I suggest 2 correlations are fine as recommended, however only so if the trader does not mind exposing themselves to that much risk as when this happens it can be like risking 4% on a single signal if wrong.. Some other traders such as my partner prefer only exposing to one at a time when two signals exist and will just choose the most reward one of the two or the more comfortable exposure pair. So this one depends on trader and psychology as well.. One can also just lower risk on both signals to 1% as well and that way limiting exposure on the two signals to 2% total.. There are a myriad of ways of limiting exposure before management as discussed in video as well..

      Also I am sure you can see now how it can get more and more exposing to risk if say a trader had 4 to 5 or even more correlated pair signals running at the same time on one account..


  3. Hi Timon

    can ask some advice. Is fair to say that a “Trade Management” strategy is important part of any traders toolbox.?

    for example I could only fund 1 position, crippling my options in what i could do in managing a trade. To make matters worse my account was so unfunded i was risking 10% on each position compounding problem even more. I think i learnt lesson in having correct level of funding in trade capital and importance of trade management.

    I would appreciate any feed back you can give Timon.

    • Hey James,
      Yes all valid points and yes it is a crucial part of money management, 10% is a lot to risk at one time and leaves one exposed a lot to risk in the market. Imagine if you got 3 to 4 losses in a row. A normal account would be completely fine and recover in a few more trades but with 10% risk it would be hard to recover.
      Good point also on funding as well, funding must be able to handle risk allocation ( position sizing in trading plan ) on all levels in order to use sufficient money management.


  4. Timon – great advice – I tried to limit my account to 5% but now i will only limit the 2% you recommend.
    Thanks again.

  5. Thank you Timon. This a great video and is for me the Holy Grail for Forex trading. I commented on this video when it was first shown and I am so enthused by its content, I feel I must comment again. The process as shown in the Engulfing and Trend Training videos has to be used in conjunction with disciplined money management and to correct exposure. There is at the moment many valid trades in the strengthening USD pairs and the weakening NZD pairs. In the bad old days, I would have traded most of the opportunities that are presently showing in the market. But following the guidance in this video I have only taken one trade. The improvement in my account since the middle of May has been dramatic. Thank you Timon, I appreciate all of the training you provide which by far the best anywhere to be found. Cheers mate. JOhnR

  6. Thanks Timon for your prompt response. It was very helpful and keep up the good work.

  7. Hello Timon
    Fantastic video and you are correct. I trade opposite correlated pairs EUR/USD and USD/JPY.
    Many Thanks for the Video

  8. Many thanks, a great article which really simplify the understanding
    of exposure and correlations.
    Thank you
    Alfredo Garcia

  9. Nkululeko says:

    If you have a $1800 what is the maximum lot size you can trade on?

  10. Hi Timon, thanks for the great video. Have a nice day.

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