Forex Risk Management for the Long Term
Forex trading is a business that aims to make a profit. To get profit and success in trading, it is not only determined by the greatness of the system, but also determined by the proper risk management. The purpose of risk management is to protect you from losses that can occur during a transaction. In other words, risk management keeps you from staying. Even if you experience a bad day, like when you repeatedly experience successive losses you will still be able to rise again. In addition, another function of risk management is that you can get maximum profit and for a long time. The following is a long-term risk management that you can use as a guideline in Forex trading:
Determine the amount of funds you will risk
The first thing you need to do is set aside and determine the amount of funds. so if you lose all of your funds, it will not interfere with your financial balance. Not that in forex trading you will lose all your money because of loss. But before that happens it is better if you do security first. For example, if you will start trading with a $ 100 fund, you can only start with the fund and no additional funds. Well for example, if you lose all the money, you can stay alive normally. This is because the $ 100 is a fund that you set aside from the start for trading.
Determine the amount of capital you risk on each trade
The financial robustness of your account is determined by the amount of money you risk in each trade. For this reason it is better to risk 1/5 of the margin you use. For example, you risk about 20% of your capital for each transaction. If your total funds are $ 1000 and per transaction you use $ 100, then you will risk 20% of $ 100 which is $ 20. This means that in every trade you will only give up 2% of your total money. Try this risk to equal the stop loss value that you will input when filling in your order form.
Determine the number of trading positions you will do
Transacting with a large number of positions at the same time means also increasing your risk. Even though on one hand this can also increase your profit opportunities. so as much as possible determine the number of positions that you will take at the same time. For example, you only limit trading 2 positions at the same time. So to open a new position you have to wait for both positions or one of those positions to close first.
Determine your risk and reward ratio
You could say this is the most important part of risk management. In each transaction, first determine the ratio between the profit you want and the loss at stake. The ratio here can also be called Risk: Reward. For example, if you determine Risk: Your reward is 1: 2. This means that in every 1 value you risk for loss, you expect to get 2 profits. You can use this rule to determine the value of stop loss and take profit.
Determine what percentage of your loss is in a day
For example you determine in a day you cannot lose more than 20%. This means, if you have experienced a loss that is close to 20% of the total funds in a day, then you must stop trading right away. The goal is that you can think more clearly for trading the next day.
A successful trader will definitely design management risk well before plunging into Forex trading. With good risk management, in addition to increasing profits for a long time you can also maintain your capital stability. So this article is hopefully useful and good luck