Forex trading is risky and most traders simply can’t deal with the high risk that it presents. If you do then you can enter the elite minority of winners. Let’s look at some tips to manage risk…
Here they are in no particular order of importance there all important and will help you with your Forex trading Money Management!
Leverage
Today you can 400:1 leverage or more and most trader’s use as much as they can and get blown out the water. For a novice trader 10 – 20: 1 is plenty. Don’t over leverage or you will lose.
Every Trade Puts Your Money at Risk
There is no such thing as one trading opportunity being better than another they all put your money at risk and the fact is the more sure fire a trade looks the more likely it is to lose money. It’s generally the most uncomfortable trades that are the best. Always expect the worst and things can only get better.
Never Place Stops in Random volatility
Day traders and scalpers do this and lose. You may think you have low risk by having a tight stop but if its to close and your 100% guaranteed to get stopped out and that means a lose of your account equity to zero.
Risk has got nothing to do with your stop minus your target – that’s an opinion! Risk is related to probability and it’s a fact if you place stops outside of random volatility you have better odds of success.
In Forex trading you need to take calculated risks to make money. If you think you can trade with low risk and no drawdown, go and put your money on deposit – Forex trading is a big boy’s game.
Have the Courage to Accept Big Gains
It may sound odd, as we all want big gains but most people don’t have the courage to accept them. Why?
Because as soon as an open profit starts to get big, the trader wants to lock it in, before it gets away and puts his stop to close to lock it in and he does lock in a profit a minor one! He gets stopped out by normal volatility and then sees the trend continue and make thousands of dollars and he’s not in!
Have the courage to accept big gains and hold your stop back behind normal volatility and accept drawdown and open profit and keep your eyes on the bigger price at the end of the move. Sure, you give a bit back but you get more of the trend, if you don’t jack your stop up to close. Forex trading is about making money not perfection!
Putting it all Together.
You have to take risks – but you don’t want to lose too much or get too far behind. It’s a delicate balance and Forex money management needs to be taken seriously, its not an after thought, it’s the basic foundation of long term currency trading success, so make it part of your essential Forex education.
By: Kelly Price About the Author:
