Trading in the forex market can be a risky business. Every trader is aware of this and they know that developing a system of money and risk management. You may have the best strategy in the world but if you cannot manage risks, you are still bound to suffer from losses. One of the most important strategies you need to implement in forex trading is money management. Here are some tips to help you manage your capital and become successful in forex trading.
Know Your Risk Per Trade
From the name itself, risk per trade represents the amount of your trading account you are ready to risk on a single trade. Robert Janitzek reveals that it’s a kay aspect of prudent money management that keeps you from blowing your account due to several losing trades. In most money management techniques, the upper limit of your risk per trade should be 2% of your trading account or less if you are just a beginner in forex. The risk per trade will also dictate your overall position size per trade.
Always Use Stop Losses
With a stop-loss, you give yourself a guarantee that you will not lose a substantial amount of money on a single trade. While certain market conditions can cause your stop-loss order not being executed at the set price, Robert Peter Janitzek reveals that most of the time they can be effective in preventing losses from your entire account on a few trades. Just make sure that your stop-loss level represents a target based on actual price-action and market conditions.
Consider Reward-to-Risk Ratios of Trades
Aside from having a clear stop target for your trade, you should also have a closing position available once it become profitable. Placing inappropriate take-profit levels can be damaging to your trading results as the inappropriate stop level will keep you from maximizing the profit potential of your trade setup.
One of the attractions of forex trading is the tremendous leverage that is offered by forex brokers. While leverage is necessary in forex market trading as many currency pairs move less than 1% a day, you need to understand that a higher leverage also increases your potential loss per trade.
Don’t Trade Based on Emotions
This is where most beginners have difficulties with. When you let emotions get the best of you, costly mistakes can happen. By sticking to your plan, you can avoid emotional trading and effectively manage your risks.