Here are 7 Easy ways that will help to lower the risk when trading foreign exchange and any other market.
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Here are 7 Easy ways that will help to lower the risk when trading foreign exchange and any
1. Low Leverage
Leverage is a powerful tool in investment. If misused it can get you into deep trouble. While
leverage will gain multiply, it can get you into deep trouble. While leverage will multiply losses.
The amount of leverage sets the position sizes that you can control. A leverage ratio of 100:1
means that each 100$ of your own money can control a position worth 10,000$.
It allows you to create greater returns on your investment than if you had put all of the money up
Put another way, and this is like buying a 100,000$ house with a 1000$ deposit. The deposit is
your equity. If the price of the house rises only one percent to 101,000$, you will double your
equity. But one percent fall in price would take your equity down to zero.
2. Set Right Stop Losses and Take Profits
Setting the right stop loss and take profit is one of the important decisions in the entire trade
It might be set at a fixed size for every trade to cap the loss at a certain amount. A Worse the stop
loss might be decided simply by the amount of money in the account in an all or nothing gamble.
The decision on where the trade will exit should factor in the state of the market and the length
of time the trader is prepared to wait for the profit.
Setting correct stops/take profits lower risk and lead to better and more consistent trade
outcomes. When a trader guesses these limits, they are already losing control from the outlet.
Click on Below Link: How to Use Stop Loss and Take Profits
3. Trading Higher Timeframe
A trading shorter time frame is more stressful and time-consuming, and many times it is less
profitable. The minute charts are more volatile and unpredictable in relative terms.
High-frequency trading also incurs more trading fees because the ratio of spreads to profits is
corresponding much higher than for strategies that hold positions for a longer duration.
The longer time frames, such as the hourly chart, 4 hourly or even daily charts can provide more
certainty on which to plan trades.
4. Look at Reason for not to Trade
The charts seem to be screaming to buy or sell. Everyone out there seems to be making money.
When a trader has money sitting idle in the account, it can be tempting for them to place orders.
At least then there will be some action.
Remember that brokers and news provider don’t care if the markets go up or down. It’s not their
money at risk.
Thinking clearly and objectively between all of this type is one of the biggest challenges facing a
trader. Always look for a reason not to trade. Ask, what if? What if next economic
announcement misses expectations? What if this technical setup doesn’t pan out? What if the
latest hot stock/forex tip is wrong? Plan for the least expected.
There’s a well-proven link between overtrading, and underperformance that we should all take
note of. Resisting the temptation to trade on emotions to avoids unnecessary risk and
unproductive use of capital.
Click on below Link: 5 Reasons why Forex is the Best Market to Trade
5. Avoid Trading Around Big Economic Announcements
A Day goes without some economic announcement or other. But the biggest ones need to be
treated with caution. Surprises announcement from the central banks such as unexpected changes
in interest rate policy can send the markets into a tailspin. Jobs reports, inflation figures and
consumer spending data can have a high impact on markets.
It is fairly easy to plan around these events in day trading. Traders holding positions for the
longer can use hedging to soften the blow of ay potentially big movements or closing them if
6. Trade Markets with the Low Correlation
Setting limits on the amount of risk on each trade position is a good practice. But if the holdings
in a traders account all move, in the same way, this won't give them any real protection.
Many currency pairs have the high correlation- as much as 80% to 90%. That means when one
trend in a certain direction the other is likely to as well. So holding a basket of correlated
currencies will concentrate risk rather than the diversify and lower risk.
When trading pairs with the high correlation, it is worth checking to see if the same end can be
reached by trading fewer pairs with the lower correlations. It could help to reduce trading fees as
Correlation isn't fixed but is changing all of the time. Use the simple hedging indicator to check
across different markets.
7. Set Realistic Goals
Monetary returns in any trading activity can be unpredictable from month to month. But having a
specific goal in mind does help to focus. The goal for many traders is just to earn as much money
as possible, as quickly as possible. But this won’t necessarily keep them on the course or provide
them with a realistic scale of progress.
It’s better to set a specific goal, such as a return on initial investment then use that as a yardstick
to measure the headway.
Setting a goal too high can cause excessive risk-taking. When a trader underperforms, they are
more prone to take bigger and bigger risks to reach their objective.
When learning, the goal can be as easy as aiming to break even over the month. Then increase as
progress is made.