A typical issue to most traders who are into forex is keeping their money secured. We are all aware that it is very impossible to always have a winning position in every session. Contrary to this, there is always a way to make sure that the majority of our sessions should gain more profit than losses. Read carefully and stay focused because we are here to share our pointers on how risk management helps boost your account.
What is risk management?
According to Mr. Webster, risk management is defined as the act of forecasting and evaluation of financial risks together with the identification of procedures to avoid or minimize their impact. With this definition, we can derive that risk management is a ways or strategy that a trader can apply to minimize the great loss in one’s account.
What are the various forms of risk management?
Below are the different forms of risk management which can be used to help protect your money when properly used.
1.Trade Exit Psychology
This technique or style tells us that every trader should know how trade exits work for the betterment of your profit. Once you’ve learned the in and outs of exit trading strategy, you are able to know the right timing of getting out or closing your trade in order to gain rather than loss.
2. Placing of Target Profit
The best thing to do with a profit target is to leave it as planned. Trying to change it as prices move is usually a sign of greed and is not logical. Staying in your initially designed plan and patiently waiting for the next session shows discipline and ethical forex trading behaviour.
3. Sizing your position
This is known as the real time placement of your lots on a particular platform.In order to determine the amount of money at risk, you have to know how to use stop loss distance and combine it with sizing position. These strategies help you think of probabilities rather than gut feeling. In here, you are encouraged to interpret market rates based on a mathematical and objective perspective.
4. Stop Loss Usage
Expert traders never suggest using this feature on a random amount of pips. Base your decision on an observation where you spot a mistake with your execution. You have to make sure that you are able to spot what makes your original price invalid prior to the order to use stop loss.
5. Risk and Rewards
These two things are known as the heart and soul of trading. A common mistake that people make is to initially calculate how much income they can make prior to determining the amount to be risked. This is wrong, experts strongly suggest doing it the other way round. Once you start to fix your eyes on the risks at stake, you end up thinking of ways to lessen it in order to profit. With this move, you are now turning yourself towards being a risk manager instead of a mere trader.
The above-mentioned strategies may no longer be new to you. The truth is, several traders have been using these but they just do not know how to play it well because their eyes are fixed on achieving high profits rather than finding ways to mitigate loss. In order to win a battle against profit loss, you must know thy enemy. Consider a losing position as your enemy. Thus, it is very important for you to understand price action trading, trading psychology, and money management to boost your account.