10 Forex Risk Management Tips

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10 Forex Risk Management Tips

• Presented by The Forex Secret

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1. Educate yourself about Forex risk and trading

• If you are just starting out, you will need to
  educate yourself.
• One attitude that will help is to approach Forex
  trading just as you would with any career,
  because that's what it is.
• The good news is that there are a wide range of
  educational resources that can help, including
  Forex articles, videos and webinars.

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2. Manage your Forex risk with a stop loss

• A stop loss is a tool to protect your trades from
  unexpected shifts in the market.
• Simply, it is a predefined price at which your
  trade will automatically close.
• So if you open a trade in the hope that an asset
  will increase in value, and it decreases, when
  the asset hits your stop loss price, the trade
  will close and it will prevent further losses.

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3. Don't risk more than you can afford to lose

• One of the fundamental rules of risk management
  in the Forex market is that you should never risk
  more than you can afford to lose.
• That being said, this mistake is extremely
  common, especially among Forex traders just
  starting out.
• The Forex market is highly unpredictable, so
  traders who are willing to put in more than they
  can actually afford make themselves very
  vulnerable to Forex risks.

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4. Manage Forex risk by limiting your use of
leverage

• Linked to the previous Forex risk management tip
  is limiting your use of leverage.
• Leverage, in a nutshell, offers you the
  opportunity to magnify profits made from your
  trading account, but it also increases the
  potential for risk
• For example leverage of 1200 on a 400 account
  means that you can place a trade for up 80,000
  (400 x 200).

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5. Have realistic profit expectations to manage
risk

• One of the reasons that new traders are overly
  aggressive is because their expectations are not
  realistic.
• They may think that aggressive trading will help
  them make a return on their investment more
  quickly.
• However, the best traders make steady returns.
  Setting realistic goals and maintaining a
  conservative approach is the right way to start
  trading.

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6. Manage Forex risk with take profits

• Once you have clear expectations, one way to
  secure your profits is by using a take profit.
• This is a similar tool to a stop loss, but with
  the opposite purpose - while a stop loss is
  designed to automatically close trades to prevent
  further losses, a take profit is designed to
  automatically close trades when they hit a
  certain profit level.

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7 Have a Forex trading plan for better risk
management

• To properly manage your Forex risk, you need a
  trading plan that outlines
• When you will open a trade
• When you will close it
• Your minimum reward-to-risk ratio
• The percentage of your account you are willing to
  risk per trade
• And more.

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8. Manage risk by being prepared for the worst

• No one can predict the Forex market, but we do
  have plenty of evidence from the past of how the
  markets react in certain situations.
• What has happened before may not be repeated,
  but it does show what is possible.
• Therefore, it's important to look at the history
  of the currency pair you are trading.

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9. Manage Forex risk by managing your emotions

• If you cannot control your emotions, you won't be
  able to reach a position where you can achieve
  the profits you want from trading.
• Why? Because emotional traders struggle to stick
  to trading rules and strategies.
• Traders who are overly stubborn may not exit
  losing trades quickly enough, because they expect
  the market to turn in their favor.

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10. Diversify your Forex portfolio to manage risk

• A classic risk management rule is not to put all
  your eggs in one basket, and Forex is no
  exception.
• By having a diverse range of investments, you
  protect yourself in cases where one market might
  drop - the drop will be compensated for by other
  markets that are experiencing stronger
  performance.

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