Clearly, any trading operation on the financial market is somehow connected with risk. Risk management becomes more and more popular not only among traders, but also companies and individuals whose job is related to management and business administration. It is extremely hard to keep business afloat without professional risk management. As for traders, it helps them increase efficiency in terms of cutting losses of their trading operations.
To be a successful trader, you should learn how to identify risky operations, estimate the risk level and reduce it so that it will allow them to earn stable incomes. Here are the list of useful tips & tricks for better risk management.
1. Cut your losses
The loss control system is a common type of risk management in the Forex sphere that helps traders fix their losses. Everyone heard about Stop loss (“mental stop”) option – an automated indication to the broker to close the deal when the price is approaching to the certain level of loss. The “stop” should be located and fixed so that emotions won’t interfere in real-time. Pay attention at the proportions between stop-order and profit-taking levels. Keep the ratio of potential profits and losses in the proportion of at least 1:3.
2. Track the trends and follow them
Try not to work in the opposite direction of the trend. Make sure you had discovered enough about currency pair growing trend before opening a position in order not to contradict it.
3. Don’t be hurry with successful deals
Until the goal is achieved, do not close the deal, because you will reduce the future income. This, in turn, will reduce your amount of backup funds for the next operations.
4. Limit potential losses per transaction
Try to determine the level of maximum losses on the transaction of the total deposit. For instance, maximum loss per transaction shouldn’t exceed 5%. It will help to compensate the loss from follow-on deals.
5. Diversify your capital
Don’t put all your eggs in one basket. This method helps traders not to lose everything at once. Leave some part of your balance as a reserved summ. At the same time, the rest should be divided between several currency pairs, where currencies don’t overlap.
6. Get rid of emotions
Keep a cold head during trading. Don’t let emotions spoil your trading plans. Stick to the selected strategy. Many traders record their thoughts into a special diary so that it will help to make the right decision when they’re stressed out.
7. Avoid the “paid-off” intention
In cases your trading operation seems to fail, don’t add anything immediately in the hope of compensate for a loss. It is better to analyze the errors before a new round.
Stick to this simple rules and you’re likely to succeed in forex trading.