Risk Management means that before starting trading you should decide how much money you are going to invest and, if the market goes against you, how much money you are ready to lose. This will help you to minimize risks. Once you developed your own risk management rules you must follow them every time you enter the market.
Your risk management rules on FOREX may be as follows:
Place Stop Loss and Take Profit orders immediately after you open a position to avoid psychological factors which may appear later.
Try to maintain 2 to 1 reward-to-loss ratio when you place Stop Loss and Take Profit orders.
It is better to place Stop Loss and Take Profit orders not closer than 50 and 100 pips from the entry point respectively.
When Stop Loss order is placed at a distance of more than 50 pips and Take Profit orders – more than 100 pips, the positions will stay open approximately within two business days. If neither Stop Loss nor Take Profit order has been triggered in two business days, close your positions. If the position is profitable then you can adjust Stop Loss order to the breakeven point.
Never risk more than 10-15% of your capital on one market.
Change your Stop Loss order level only in the direction of the position but do not overdo it, as it may trigger even if a small rebound occurs (as your Stop Loss is too close to the current price).
Before Stop Loss or Take Profit is triggered do not close your positions (unless your position is in the market more than two business days).
Do not add positions to the losing ones.
Do not be obsessed with the idea to win your losses back.
If you are tired or something bothers you, do not enter the market, even if the situation seems very promising.
Do not trade scared money. You will be under great pressure and trading will become unbearable. Under this stressful situation you have more chances to make wrong decisions.
Do not be impulsive, try to control situation at all times. Even if fortune on your side do not be overconfident thinking that you know something that others do not.
Emotions are your bitter enemy. Stay calm. If you have been losing for a while, have a break, clear your mind, and come back to trading when you feel confident. Rememeber that your mind is the most powerful factor which influences your trading results.
Warning: All the views and statements in this website are believed to be valid
when published but they are given without responsibility for any inaccuracy or omission.
This document does not constitute an offer or a recommendation to enter into
any transaction. Any person placing reliance on this information to undertake
trading does so entirely at their own risk. The markets can be very volatile
and prices may move rapidly against you and past performance is not necessarily
a guide to future performance.
