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  • Recommendations for Risk Management in Forex

    Proper management of the risks associated with trading in the Forex market allows for regular income in the long term. There are some recommendations regarding risk control.

    Preliminary Analysis

    The transaction should be opened only under the correct conditions that meet the criteria of the trading algorithm. The transaction, opened without conducting a preliminary analysis, carries additional risks and is likely to eventually be closed with a loss.

    Trading Plan

    A trading system is needed to analyze market conditions, which is a set of rules to help a trader decide whether or not to open a particular transaction. Unsystem trading without a clear algorithm can result in partial or total loss of trader capital.

    Limit Of Daily Losses

    A trader needs to define a daily loss limit that typically should not exceed 5% of total capital. Simply put, if a trader’s capital decreases by 5% in a day, it is desirable to stop trading at least until the next day and analyze possible errors. This avoids reckless and spontaneous actions that can lead to even more serious losses.

    Loss Limit For Each Transaction

    It is recommended to risk no more than 1-3% of total capital. This is necessary to avoid the possibility of a serious drawdown in the event of a series of losing trades. If the risk on each trade is limited to 1%, 10 consecutive loss-making trades will result in 10% of total capital. Such a minor loss can be easily compensated for in the future.

    Stop Loss

    Each transaction must have a loss limit. Trading without a stop loss could result in significant losses in the long term. Any unpredictable event (such as the September 11 attacks) could break the financial market in a fraction of a second. If a stop loss warrant is not posted, it could seriously damage your account.

    It Is Important To Trade In The Direction Of Trend

    The market trend will generally continue to move in its original direction rather than the opposite. Trade against trend may well lead to high risks and a low expected value, as the probability of closing the trade against trend with profit is always lower.

    Analysis Error

    Every trader occasionally makes mistakes in the trading process. You have to fix all your mistakes in time to avoid falling into the same trap. If you doubt it, stop the trade. If the trader doubts his trade or the direction of the market, it is recommended not to open positions. It’s better not to make money than lose it. Rest assured that the market will allow you to open up a good position in the future if you are firm and patient.

    Control Your Emotions While Trading

    Don’t let emotions control you when you’re trading. Otherwise, any decision to open a trade will be prompted by your emotions, not common sense and systemic approach. This will lead to increased risks and possible loss of capital in some cases.

    Do Not Invest All The Money

    It is advisable to invest free funds in trade in financial markets. If the trader follows the advice, he will not suffer serious financial losses and his lifestyle will not change as a result of wrong decisions and possible loss of capital. It is highly recommended not to use borrowed funds (credit, debt, cash from the sale of an apartment, etc.) when you invest in financial markets. You can experience serious consequences in your daily life if you lose that money.