Forex trading is primarily based on speculations and predictions. There are many people that consider it synonymous with a gamble. A trader, when involved in trading, is never sure whether it’s going to be a win or a loss for him. Risk management minimizes this state of uncertainty for the trader. Fuad Ahmed, detecting the same issue, has compiled a list of tips for risk management in forex trading.
The following infographic explains how risk management tips can change the game of forex for a trader and save him from a loss. Therefore a plan that identifies, assesses and controls threat to capital be implemented to do away the risks.
How risk management works
The first step to follow is the measurement of risk, and never enter a trade in case of doubt. Not gauging the risks beforehand can cultivate disastrous results for a trader. Therefore it’s very important to judge them and trade only when the trader is not doubtful about the position.
The next step is planning of the strategy, followed by the tip to always go by the market trends. Financial markets have a tendency to behave in a certain manner. The highs and lows where are directed by the economic movement of the world, the influencing factors are often pre-readable. So, checking the trends always give help to the trader.
Placement of stop loss at the time of order opening also holds an important value in a trade. A trader should ensure he is not risking more than 1-2% of his account value. Which means that if a trader is investing 10,000, he should only risk 100 to 200. Moreover, he should also not trade a big lot and know when the right time to close a trade has come.
A trader should always consider going for a minimum level of leverage. So the he is not indebted after a loss in trade. He also needs to remember that trading the same currency can be a bad idea.
Above everything else, the most important element that can determine someone’s win or loss is his psychological state. If he is not under pressure, chances of him ruining the trade deals made in that state of mind are high. This is the reason, traders are advised to remain stress-free while entering a trade.
Risk management is one of the elementary steps in trading forex. The purpose of this infographic is for traders to understand how some precautions can rescue them from a trading disaster.
Infographic by- Fuad Ahmed Currency Trading Expert