Forex Risk Management Strategies

risk-management-1024x662

Forex is set up to be a rather risky endeavor. I always encourage new traders to go easy on the risk as they get started. The system is somewhat rigged to encourage risky behavior, so you have to set out with a plan to protect yourself.

First Things

The number one thing that you can do to manage your forex risk is to never trade money that you can't afford to lose. Sometimes people skip this one thinking "that won't happen to me", but it really will affect your trading performance. If you are trading money you can't afford to lose, and you lose significantly, or even face the threat of losing significantly, your decision making will be compromised and mistakes will happen.

Second Thing

The second important thing is that you need to not let your eyes be too big for your stomach. If you don't know what that means, it means start small. Make your trade sizes appropriate for your account balance. US brokers offer traders the ability to make trades at 50:1, but that doesn't necessarily mean you need to be thinking that big. Trade what you are safely able to trade. This means you shouldn't be opening $100,000 trades with a $2000 account. There is no need to make huge percentages every day on your money. It's more important to make continuous percentages rather than large ones.

Third Thing

Use stop losses correctly.

A stop loss is a type of order that does exactly what it says, it stops you from losing any further money from your account. Trades don't always go the way you expect, you need a parachute to cut your losses. The trick is to set your stop in a spot that you know the trade will reach if you are totally wrong with your trading idea. See :  The Basics of Using Stop Losses

Expanding on Using Stop Losses

Stop losses should be considered to be your emergency exit. They should be set to execute when your trade has gone horribly, horribly, wrong. I've seen many traders place their stops at a price where they might be wrong, or even worse, could possibly be wrong. If you set your stop too close to your price, it's going to get hit, it's Murphy's law.

Putting It All Together

Trading with money that you can afford to lose in worst case scenario, trading with reasonable lot size, and controlling your risk with stops will prevent you from having a major trading disaster. These steps won't prevent you from losing money, they will just give you a chance that you will survive. Far too many traders take a wild west approach to trading and sometimes it works for awhile, but when it's over, it's really over. They tend to walk away with empty accounts.

Trading while keeping your risk low will keep you in the game and put money in your pocket at the same time. Forex trading is a legit thing, but you have to be wary of the set up. You can make money, if you don't get carried away with taking on risk.

 

 

By John Russell - https://www.thebalance.com/forex-risk-management-strategies-1345189

The Basics of Using Stop Losses
Basic Forex Risk Management

Related Posts

 

Comments

No comments made yet. Be the first to submit a comment
Already Registered? Login Here
Guest
Saturday, 23 February 2019
If you'd like to register, please fill in the username, password and name fields.

Captcha Image

High Risk Attention and Disclaimer

HIGH RISK - ATTENTION : Forex imply an elevate level of risk which might be not suitable for all investors. Leverage generate further exposition and loss risks. Before to take decision of trading forex, consider carefully yours investment objectives, expertise level and propensity to risk. Past performance is not indicative of future results. Your starting investment might be lost partially or totally. Don’t invest money you cannot afford to lose.  
DISCLAIMER : Pages contained in this web site in any case constitute neither financial counsel service nor solicitation to public saving. Nothing contained in this web site constitute solicitation, offer or recommendation to purchase or sell any investment or to commit in any transaction. Nothing contained in this web site constitute solicitation to investment, fund raising or management for third party. Opinions, article, analysis report, operational report and other documents realized from INDOFOREX.INFO which have to do with market speculation, are dedicated to sustain our individual trading and in any case to represent, solicitation, advice or invest invitation. The web site has just a guise of sharing, cultural and expertise. Although the indication quoted are provided with a mere informative scope, we refuse all responsibility, charged to web site Administrator, for possible negative consequences which should come from an operational funded on their observance.