When most people begin trading Forex they dream about big profits, the bigger the better. But most of them give very little thought to risk management. Maybe that's why over 90% of Forex traders lose money?
The truth is that a single bad trade, if not done properly, can cause you a massive loss which will take a lot of profit to recover. Before you even begin to think about profits, you have to reduce your Forex trading risk as much as possible. That's the way to long term success in Forex.
But how do you minimize your Forex trading risks?
Here are some tips:
1. Don't overtrade – Many traders place too many trades for their own good. They want to be “in the game” as much as possible. After all, if you're not in the market, you can't make any money, right? It is right, but what's the point of playing the game if you lose?
The right way to trade is to place only high probablity trades. Even if you're out of the market for days at a time, wait until you have a real opportunity. Don't overtrade.
2. Don't overleverage – Forex seems like a market you can make tons of money fast because of leverage. You can place a trade and place a huge leverage on it which means that if the market goes as you want it to, you will make a whole lot of money. However, if the market turns against you, you will lose a lot.
Using high leverage is an invitation to huge losses. Don't allow this to happen to you.
3. Working without a trading method – A lot of people trade on hunches, or trade the news, or follow tips. They're not traders but more like gamblers. If you want to control your Forex risks, always work with a complete method which tells you when and how to trade.
4. Always place a Stop Loss – If the market turns against you, the only thing which stands in the way of a huge loss is the Stop Loss price you set up. Rule #1 of Forex risk management is to always place a Stop Loss on each trade and to never move it if the market turns against you. The Stop Loss is sacred.
Follow these 4 tips and you will have a much better chance to make it big on Forex.