Risk and Money Management
We will discuss how to maximize your profits while minimizing your risk, using one of the most important tools of forex trading – proper money and risk management. This will help you mitigate your risk and still allow you to make a nice profit.
- Market Volatility
- top Loss Settings: How, Where, When
- The Risks of Leverage
- Trading Plan+ Trading Journal
- Trading Checklist
- How to Choose the Right Broker – Platforms and Trading Systems
There is no doubt that when building a trading plan, your risk management strategy is critical. Proper risk management allows us to remain in the game longer, even if we experience specific losses, mistakes, or bad luck. If you treat the Forex market as a Casino, you will lose!
It is crucial to trade each position with only small parts of your capital. Please do not put all your capital, or most of it, in a single position. The goal is to spread and reduce risks. You have a fantastic plan if you built a plan expected to produce 70% profits. However, simultaneously, you must keep your eyes open for losing positions and always keep reserves in case of several unexpected, consecutive losing positions.
The best traders are not necessarily the ones with the fewest losing trades but the ones who only lose small amounts with losing trades and earn high amounts with winning trades. Other issues impact the level of risk, such as the pair day of the week (for example, Fridays are more dangerous trading days due to intense volatility before closing the week’s trading; another example – by trading JPY during the busy hours of the Asian session); time of year (before vacations and holidays increases the risk); proximity to major news releases and economic events.
However, there is no doubt about the importance of the three trading elements. By paying attention to them, you can adequately maintain your risk management. Every respectable platform allows you to use these options and to update them live.
Can you guess what they are?
- The Leverage
- Setting a “Stop Loss”
- Setting a “Take Profit”
Another good option is “Trailing Stops”: setting trailing stops allows you to retain your earnings while the trend goes in the right direction. For instance, say you put a Stop Loss 100 pips higher than the current price. Nothing will happen if the price reaches this point and continues to go up. But, if the price starts dropping, reaching this point again on its way down, the position will automatically close, and you will exit the trade with 100 pips of revenues. That is how you can avoid future decreases that will eliminate your profits.