4 Forex Trading Strategies Reduce Large Loss Risks
In forex trading, it’s not always a transaction that you make fruitful profits. There are times when losses come to you. Many causes of loss, because there is no perfect forex system or strategy.
But sometimes the losses will be too large. Now, in such cases, there is usually a “human error” factor there. You may forget some important things related to capital management and risk management, such as stop loss. In the end, the risk of being out of control and the loss you experience becomes too large. You certainly don’t want this to happen right?
Well, to avoid such things in your forex trading activities, here are five ways to reduce the risk of loss that is too large.
FIRST: Check & Re-check
Making transactions is very easy. You just press the button on your mouse and … click! Transactions also occur. Once the transaction is made, you will not be able to cancel it (except for “pending orders” ).
But remember! As stated at the beginning of this paper, you certainly understand that the market can move against your wishes. That is why you always have to limit risk in every transaction that you do by placing a stop loss correctly. Never forget to check if you have placed a stop loss every time you make a transaction.
Limiting risk is not only limited to placing a stop loss level but also closely related to limiting the volume of transactions you make, in this case, the number of lots. The lot and stop loss levels depend on how much your capital is and how much risk you are prepared to bear.
An example is this: say you have money of USD 100,000 (one hundred thousand) in your forex trading account. Of the 100,000 USD, determine how much risk you are prepared to bear for each transaction, for example, 10%. That means the risk of maximum loss that you face is only USD 1,000 (one thousand) each time you make a transaction.
Then do a technical analysis to find support or resistance levels. You can use these support or resistance levels as a stop loss benchmark. If you take a long position, the stop loss benchmark is a support area, on the contrary, if your position is sold then the stop loss benchmark is the resistance area.
Even in analyzing you must check & re-check as well.
Make sure the signal that appears has actually been in accordance with the rules of your trading strategy.
Return to risk restrictions. Suppose you see that the stop loss level is at a distance of 500 pips (assuming the price uses 5 decimal places) from the entry level, which means USD 500. If your risk limit is USD 1,000 then that means you can only make a maximum transaction of 2 ( two) lots, no more. Check again, do you really enter the number 2 (two), or 20 (twenty)? In 2010, there was a futures trader on the New York Stock Exchange who entered the transaction amount incorrectly. His intention was to make a transaction of only USD 16 MILLION (million), but he actually put in USD 16 BILLION (billions)! A thousand times that!
Do you also need to check again whether you made transactions in the correct currency pair? It happened to my colleague: he intended to open a position on the USD / CHF pair, but apparently, he executed the transaction in the AUD / USD pair. Ridiculous right?
Now, there are at least four things that you need to check and check again: place a stop loss, the amount of the lot, the rules of the trading strategy, and the currency pair.
TO TWO: Always Loyal To Trading Plan
Any advanced forex strategy will not work if you do not obey the rules in it. Conversely, often a trader who uses a simple forex strategy can consistently benefit because he is consistent with his trading plan.
Trading plans in forex trading include at least three things: money management (related to capital usage per transaction), risk management (risk limitation) and trading strategies. The first point has been mentioned in these matters.
If you have compiled and set a trading plan, then run it seriously. If your trading system has not allowed opening a position, do not force it to open a position. Do not also increase your risk limits, and unfortunately, this is the “disease” which until now still affects the majority of traders.
TO THREE: Take a Break Time
Sometimes it’s time you can’t keep up with market movements and successive losses occur. At times like that, you often become very emotional and psychological conditions like that can lead to at least two things: you become afraid to do more transactions, or you just become more confused and make transactions that are not in line with your trading plan.
If at any time you feel at least one of the two feelings above, I recommend stopping first for some time. Get away from the hustle and bustle of forex trading and use that time to evaluate your trading results. There are times when you have to revise your forex strategy, or at least find that the market is not suitable for you to implement the strategy.
If your mental condition has recovered, that is when there is no feeling of fear or “revenge” because you have lost, then you can go back to the market.
FOUR: Disburse Your Profits
What are your goals for trading? Of course to get money right? Then pick the fruit of your hard work. Take profits from your trading account regularly, for example, once a month.
Take advantage of this if your balance has increased from USD 10,000 to USD 10.100; even if your monthly target is USD 1,000. There are times when your target is not reached. It is okay. Just enjoy the results of your labor. Buy items that you have been searching for for a long time, or use them to treat your friends to eat and say proudly, “This is the result of my trading!”
If you do not take the profit, it is feared that you will fall asleep when one day your transaction is dragged down by the market. There is a possibility that you will think, “Ah, yesterday’s profit still exists. HOPE AGAIN. “This is dangerous!
The bottom line
Quite a lot of traders are astonished, why the profits he has gained can disappear quickly. In addition to market factors, it turns out they often ignore the four points that have been described in this article.
Hopefully, this article can help you.