4 Tips to Get around Risk at Forex Trading
Who dares to deny that forex trading is a high risk? Every person who has traded certainly knows there is a risk that is always trailing every transaction made. Yes, it’s the same as other businesses that also have risk factors. It’s just that the level of risk in forex is much higher.
Okay, if we have agreed on this, we continue.
The high level of risk is actually a sign that the potential benefits stored in it are also high. High risk-high return , it is an unwritten law in the world of business or investment.
The problem then is: how high is your ability to manage existing risks, to then be converted into profit opportunities? Ironically, even though every trader is aware of the presence of risk, not everyone has the awareness to manage that risk properly.
The cause is classic: psychology. Implementation of “managing risk” in forex trading , one of which is the courage to get rid of a loss -loss position. Not to mention emotional control, such as not opening too large a position to pursue big profits in a short time. Ah … so much. In this blog, there are lots of articles related to these things.
Even risk management cannot be separated from psychological factors.You can indeed learn risk management techniques in trading, but in applying them psychological factors that play a role.
Well, so that the burden of psychology in managing risk becomes lighter, it’s a good idea to follow these tips.
Tip s # 1: Use “Risk Capital” only
In trading, you should limit your risk. Simply put, if you have $ 10,000, set the maximum risk tolerance limit, for example 50%. So your mindset should think that you only have $ 5,000 in capital. This is what is called risk capital .
From the risk capital , detail into a smaller risk limit, namely the risk limit per transaction. For example, set a maximum risk of 10% of the risk capital . So, every time you make a transaction, the maximum loss that you will bear is only $ 500.
Well, from the calculation as above, it means that in every transaction you only risk 5% of your original capital. Pretty small right ?
Hopefully, with that small risk, you will be more “comfortable” in making risk-limiting decisions.
Tip s # 2: Cut Your Losses Short, Let Your Profits Run
This is one popular idiom in forex trading. The point is you have to be able to close positions that are experiencing losses as quickly as possible, but dare to allow the position to reach the target at least.
But it’s easier to say than done.
How to make it easy to do?
Well, for that you need to have enough knowledge about technical analysis. Technical analysis will help you find the right risk limits and profit targets. You will also be able to find out “early warning” so that you can immediately close the losing position. In addition, with an adequate understanding of technical analysis you will also be able to decide whether a position that is experiencing profit can be left open or not.
Tip # 3: Don’t Overtrade
Leverage is indeed easier when viewed from the small amount of capital needed to make transactions compared to the actual transaction value.
At first glance, the greater the leverage seems to be more profitable.Even though it’s not always that way.
One simple explanation like this:
The greater leverage means the cheaper the capital needed to make transactions. If you should need capital of $ 100,000 to make a transaction, then with 1: 100 leverage you can make a transaction with a capital of only $ 1,000.
Well, if you have funds of $ 10,000 in your account, then with such a small transaction capital you will usually be lured to open as many transactions as possible because you feel you have a lot of “bullets”.Even though this is actually not the case, because every pip of loss you suffer will be multiplied by $ 100,000 and multiplied by the number of lots you open.
Tip # 4: Don’t be greedy
You may have watched a movie called “Wall Street”. In the film there is a character named Gordon Gecko who argues that “greed is good” . I don’t believe that.
Yes, it may be true that under the right conditions and certain “measures”, “greed” can help increase the potential profit. For example when you decide to activate a trailing stop when your transaction has reached a certain profit. The problem is, not everyone can set “doses” and determine when he should be rather “greedy” .
Even so, uncontrolled greed is in fact one of the deadliest things for a trader. Overtrade, taking risks too big and not setting profit targets are some of the implementation of greed.
Well … back again: trading plan is one thing that can control the “level of greed” in a trader. Again trading plan .
Maybe you often read my articles thinking, “This guy seems really hobby,talking about trading plans ?”
yes, you are right. Do you want to know why? Because of all – yes: ALL – traders who fail to fail, which I meet are those who fail to make and carry out trading plans well. I don’t want you to be like them.