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 profit, traders use some methods of risk management. There are different types of risk management:

Methods of risk management

Previous Analysis

First of all, you should do a analysis of the market. You need to have the actual reason for the opening of the position. If a trader understands what is going on Forex, he can increase his chances of good profit. The analysis consists of the analysis of current news, determining of the High and Low of the day and identifying 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 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 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 a well-established algorithm and follows its rules. What else can help is not to follow the emotions while trading. Any strategy has to be profitable in the long term. It’s better not to start trading on the real account before the trader has good and stable results with a currenttrading 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 risk management.

These methods, the essence of which is the valuation of the losses in the trading period, will be 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.

You should deposit only the money that you can spare

The next method involves using stop losses. You should place the stop loss when you open the order. Usually, this method is not applied while using the scalping strategy. However, trading without stop losses is very dangerous.

Also it’s very important to acknowledge your mistakes. In case you have made some mistakes, you should fix the losses and 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.

...it’s better not to start trading if you are not confident.

Another method of risk management which is worth mentioning is the control of emotions. The passion and the greed are not acceptable on the currency market. It’s better to be aware of the market and have good judgment. Only then you can treat the changes on the market adjectively. If you feel too stressed, 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 misunderstood the signal . 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.

by JustForex, 2017.08.05

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