Dec 25, 2020

How Proper Risk Management Saves you in Forex Trading

A lot of people who are probably reading this right now have probably found themselves either frustrated or too overwhelmed in Forex Trading. It is also safe to assume that some of you have probably looked into quitting all throughout given that your trading account has probably gathered enough damage.

With what is going to be discussed in this article is taken into account, this might have an impact on your trading plan and additional knowledge for proper risk management is implemented, there will be a possibility in recovering from the damage you have incurred.

Some people have probably, if not all, found themselves falling over a long-run and despite a lot of elements can be at play whenever they have experienced failure, there is always one aspect of trading that they have neglected: Risk Management. Most traders who get into trading do not involve themselves in the inner workings of proper risk management and unbeknownst to them, this can be a very powerful tool you can use while trading in the market.

The proper weaponry in winning the battle

Essentially, there are three interconnected aspects of trading that synergizes with one another:
-    Technical Ability: This is the trading strategy you apply, your ability to read charts and make action price trades.
-    Money Management: Self Explanatory, but it dwells on how much money you are willing to risk losing when trading, stop loss placement, position trading and profit targets. In a nutshell, these are the things that you do in order to maintain your capital for trading.
-    Trading Psychology: This is the aspect of trading that represents the mental side of things like resilience and self control.

As much as these are the three aspects that synergize, a lot of people in Forex Trading tend to neglect Money management as it is the aspect that covers proper risk management plans. All the aspects about reading and analyzing charts will not work if you are not able to properly monitor and manage your trading capital. And if you lose your trading capital, that is all she wrote for your stint in the market.

As a trader, you will need to ask yourself why you have engaged in battle (trading) and are you really equipped with the right weaponry to win it? Most traders lose in the market and you will need ask yourself how properly prepared are you in these types of scenarios

It is not enough to become a “good trader”

Uncalculated risks are made by very careless traders and such errors like overly using leverages can be the doom of these people. Putting themselves at unnecessarily big risks can cause your capital to be depleted. Being a good trader doesn’t necessarily cut it anymore as despite them having a good result in the past and have even been hired by big banks and firms, their difficulty in sustaining capital properly is eventually caused by the lack of proper risk management plan as the source of losses.

“Good traders” who are able to analyze charts and project the next move are not going to have a very sustainable future in the market. Those however, who have looked into controlling their risk capital and consistently manage their market exposures are the ones we can expect to stand tall in this line of endeavor If you have lacking skills in preserving your capital, you are definitely on your way to retiring from Forex Trading at a very earlier time that you have not intended. And this retirement is definitely the bad kind.

Key things that you need to look into for Proper Risk Management!

When looking into trading, check if the lemon is worth the squeeze. When trading and it involves a certain amount of risk, make sure that it makes sense, otherwise, it will always be smarter for you to pass it up for a better opportunity.

Some people have different outlooks in risk management and most of them would stick with certain management systems for risks such as “the 2% rule” which might not be a good thing for you as a trader. Look into other rules or philosophies that might help you in achieving a more proper risk management for your trades.

Being able to understand how much of an impact Stop Loss placements have in your risk management system is a must. This is so mainly because you are able to determine until where you stop and declare the risk you can take in a position.


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