Methods of Risk Management

As you know, every trade on the currency market is exposed to some level of risk. To reduce possible losses and increase the profit, traders use some methods of the risk management. There are some types of the risk management:

Methods of risk management

Previous Analysis

First of all, you should do previous analysis. You need to have the objective reason for the opening of the position. If a trader understands what is going on Forex, he can increase his chances on good profit. Previous analysis consists from the analysis of current news, determining of the High and Low of the day and identifying of the current trend on the long timeframe.

The Creation of the Trading Plan

The second method is creating and following the trading plan.

Each trader has his own trading strategy. One uses fundamental analysis, another uses technical analysis only and someone uses just his intuition. The difference is in the profit of the strategy for each trader. You can create your own strategy, or use already existing one and adjust it for yourself. The trader can analyze his mistakes and not repeat them in the future, if he uses definite algorithm and follows its rules. What else can help is not to follow the emotions while trading. Any strategy has to be profitable on the long term. It’s better not to start trading on the real account before the trader has good and stable results while using the trading strategy.

It’s not recommended to use more than 5–15% from the total account deposit per one order.

How to Manage your Forex Risks

Determining the percentage of losses is another method of the risks management.

The methods, the essence of which is the valuation of the losses in the trading period, will me more useful. Further, it’s necessary to make the diversification of the trades. It’s not recommended to use more than 5–15% from the total account deposit per one order. One should not forget that many currency pairs correlate with each other.

It’s better to deposit the sum, which is on the free usage.

The next method is the using of the stop losses. You should place the stop when/after opening the order. Usually, this method is not applied while using the Scalping strategy. However, trading without stop loss is very dangerous.

Also it’s very important to admit your mistakes. In case you have made some mistakes, you fix the losses and you should analyze the situation. It’s not recommended to try to "outstay" the losses. If the losses are increasing and the price is moving in the opposite direction, it’s better to close the order.’s better not to start trading if you are not confident.

Another method of risk management which is worth mentioning is the emotions control. The passion and the greediness are not acceptable on the currency market. It’s better to use awareness and good judgment. Only then you can treat adjectively the changes on the market. If you feel too stressful, it’s better to take a break in the trading. The psychological factor is very important for each trader.

Moreover, it’s better not to start trading if you are not confident. In this case it’s better to stay away from the market, than to lose money. Don’t open an order, if you think that you could have understood the signal incorrectly. The specifics and clarity are very important in the trading. Only in this case you can receive your profit on the Forex market.

These quite simple but effective methods of the risk management will let you reduce losses and increase your profit, as well as quickly react on the price changes on the market.