Forex risk management
Our life constantly exposes us to various risks, regardless of the type of activity. Having entered the forex currency market for the first time, every trader must clearly understand that forex is no exception and, one way or another, the trader will have to take risks by making a particular deal. Most traders from the first steps are faced with the problem of violation of risk management, dreaming of getting the maximum profit. First of all, this is a psychological problem. Such traders strive to get rich as quickly as possible with little capital. The amounts that a trader earns with optimal risk management often do not satisfy his desires, which directly leads to an increase in risks. It is this unconscious overestimation of risks that causes the reduction of the deposit or its complete loss.
What are the risks?
When trading on the Forex market, risks are divided into blind and calculated.
What is blind risk? There are situations when a trader, under the influence of his emotions, makes rash deals, in a state of euphoria, or vice versa, in a fit of desire to win back. Such trading is more a kind of gambling, which most often leads to losses rather than profit.
If we talk about calculated risks, then in this situation a trader, before entering the market and making a deal, clearly defines and understands what he can afford to lose if he sees the market incorrectly. If a trader in his trading is guided to a greater extent by calculated risks, he has every chance of achieving success in trading.
Stop-losses are used to fully control your risks during a trade. These orders are aimed at fixing your loss if the price went against the trader. How to apply these stop orders? It should be understood that the size of the stop loss depends on many factors: on the chosen strategy, on the working timeframe and the acceptable percentage of loss of the deposit. It is inappropriate to set a stop loss equal to 10 points if the trader will work in the medium term. In such a situation, the likelihood of its quick response increases. In this situation, the mechanical setting of a fixed stop loss is not acceptable, because the price can simply knock out your stop loss and go in the right direction. More often than not, experienced traders set stop losses within some important technical levels.
First of all, you need to clearly understand how long the price will move against you.