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Managing your money by managing your risk

Discussion in 'Forex Beginner Q&A' started by amantrader2, Jun 7, 2011.

  1. amantrader2

    amantrader2 New Member

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    AmanTrader| managed account | Brokers online | Tec
    Trading the Forex market can be profitable, however, it can be just as costly without the proper management over your capital. Generally with each trade, stop losses are placed to ensure that a trade that goes against you does not completely devour your invested capital.

    A stop loss is a preset target where your trade will close out. Setting proper stop losses are important to ensure that your losses are minimized. For traders that don’t want to sit in front of their computer every minute they have positions opened, stop losses are your best friend.

    Setting the amount you are willing to lose per trade is subjective. Generally, risk levels are set at between 1% and 5% of your trading accounts total balance. This means at a risk level of 5%, you can place 20 losing trades before you lose all your funds. If you find that you often lose 100% of your funds, you may wish to back track on your strategy.

    Say for example, you deposited an initial amount of $1,000. To risk 2% per trade would be to set a stop loss which will close the trade for you should a single trade lose $20 ($1,000 x 2% = $20).

    Make sure that you manage your risk, as this is one of the pivotal aspects in long-term trading success.

    Trading Psychology
    Managing your emotions

    Quite often, the greatest opponent you have while trading is not the market but yourself. When trading, greed and fear often limits the potential returns from profiting trades and on the opposite side of the spectrum can result in greater losses than necessary or turn potentially profitable trades in to losing trades.

    All traders (successful and unsuccessful) can attest to holding on to losing trades for far too long for no other reason than the “hope” that they become positive again. This is otherwise known as being too greedy.

    Alternatively, the fear of taking profits too early or closing at a small loss when they can potentially be profitable is also another emotional response that needs to be adjusted. Good traders strictly follow a complete trading plan that incorporates money and risk management, entry, exit rules and do not let emotions influence their trading.

    When do I move from demo to a live account?

    The important move to using a live trading account rather than a demo trading account is a question that is often asked by many new traders. Most important is that you have a strategy in place, once you have become comfortable with a strategy or a few strategies that you have tried, you are encouraged to move to a live trading account.

    As great as demo accounts and “play money” is for learning, all too often an emotional detachment is developed to the trading loses with play funds and you will never develop the keen senses to close out losing trades. It’s all too often that serial demo users lose their account balance and continue to deposit remarkable sized amounts of funds. In reality, $100,000 is very hard to replace for most people.

    Once you feel you have a comfortable grasp of strategy, control over your emotional misgivings to trading, you can begin your live trading with read funds and expect real returns in profit.
    http://www.amantrader.com
     
  2. hugo30

    hugo30 New Member

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    That is a basic thing, but it totally works.
    Thank for sharing information.
     
  3. Jhon Kumar

    Jhon Kumar New Member

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    Yup, I also goes with hugo30. That's a very basic thing.
     
  4. UMOFX IB

    UMOFX IB New Member

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    Loss and profit is parallel in trading , A trader has to pay attention to both.Mostly traders are in a try to get profit they forget loss and its management. if they plan before trading. How much loss is possible in this trade they will do such a steps to avoid or control this risk factor. In this way their money will not go waste.
     
  5. lobax

    lobax New Member

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    Stop/loss orders allow traders to set an exit point for a losing trade. If you are short a currency pair, the stop/loss order should be placed above the current market price. If you are long the currency pair, the stop/loss order should be placed below the current market price. Stop/loss orders help traders control risk by capping losses. Stop/loss orders are counter-intuitive because you do not want them to be hit; however, you will be happy that you placed them! When logic dictates, you can control greed.
     
  6. mak123

    mak123 New Member

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    Very nice post for risk management technique. This post will surely going to help in my forex trading for risk management.
     
  7. rrayne20009

    rrayne20009 New Member

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    Thanks for sharing such informative post.It definitely broaden my knowledge as a newbie about how to minimize losses.
     
  8. lee.belisar

    lee.belisar New Member

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    Risk is part of any business. It's normal. But in order to be successful in any venture, we must handle that risk the proper way. And risk management is such a good way to minimize, if not eradicated, the loss. Thanks for sharing this.
     
  9. rrayne20009

    rrayne20009 New Member

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    Where should I place my stop and limit orders?I learned that controlling your losses is a kind of risk management.
     
  10. lee.belisar

    lee.belisar New Member

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    Hi Rrayne. I read something, it's a blog, about related to your question. And I just thought that the tool developed by John Bollinger aimed at gauging the volatility of the market will help you a lot to answer your query. I hope this http://www.gdmfx.com/bollinger-bands-and-macd-volatility-and-direction/ will help you find answer as to where you should place your stop and limit orders.
     
  11. orni308

    orni308 New Member

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    it was very defined information on risk management, and i think its all about taking calculated risk, forex is a bit risky after all ....
     
  12. tianxiabachang

    tianxiabachang New Member

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    Managing your money by managing your risk Reply: Profit and lost should be equal important in forex trading. If just seek to higher profit, you may lost much. Risk management plan is very important to make sure you can survive firstly.
     
  13. sininfinity

    sininfinity Active Member

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    Very wise words. Many newbie traders loose money because they don't apply proper risk management and use more volume than they can handle. That leads to huge loss and they blame the market for it.
     
  14. somefxtrader

    somefxtrader New Member

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    I have proven that patience is more important than aggression. Though with aggression we can take advantage of good trading condition, but with patience we minimize our loss. Specially for beginners, it's important to aim in minimizing loss than gaining big profit. Only expert traders should be aggressive in trading as they do know pretty well when is the best time to trade and when there is less risk of losing. I took suggestion from some expert trader, and use risk management to minimize emotional aspect during trading. Still use 2% risk per-trade based on my Tickmill account margin. good execution condition (ECN) with low spread and also high leverage offered (1:500) makes any trade only need small amount margin required.
     
  15. orni308

    orni308 New Member

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    Aggression makes us to take wrong decisions, as we tend not to consider all the aspects of trading in a aggressive state.
     
  16. sininfinity

    sininfinity Active Member

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    I am not a fan of aggressive trading. It does not suit my trading style. I rather wait for a good opportunity which has high probability of success. In this way I loose many profitable trades but it is ok with me as I can not catch them all.
     
  17. jologs

    jologs New Member

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    aggressive trading is not me either, like some traders tend to take scalping to a way way way new hights that i cant even follow, lol, so im more of a swing trading, slow and low risk, like fishing, just wait for it and it shall come
     
  18. sininfinity

    sininfinity Active Member

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    lol.

    I tried swing trading. But because my capital is small so I can't make big with it. Also it did not go with my personality. Day trading is more suitable for me.
     
  19. Sharon Higgins

    Sharon Higgins New Member

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    Sininfinity, I believe big or small capital does not make a difference, as if you have talent then it is not impossible to turn 1 dollar into 10 and 10 into 100 and so on, but obviously we believe from first day that it’s not possible, so we don’t even put effort to get it done. I believe if we manage to get the capital even up to 50 dollars and just have one aggressive trade going our way then it could turn into 200-300 dollars within hours, so it’s all about confidence and belief. I have a lot of self-believe and with right support in OctaFX, it helps a lot especially with low spreads that is just around 0.1 to 1 pips for most of the top pairs.
     
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