Related to the risks that must be faced, if you want to start trading forex, special tips are needed to reduce or even reverse your position which was minus to be positive and gain profits. According to Investopedia, the best traders need to incorporate risk management practices to prevent losses from getting out of control.
Tips to reduce your trading risks:
Cut loss
This is the action of closing your position as opposed to market price movements. Cut loss
used to limit losses suffered so as not to cause even greater losses.
Switching
This action is similar to cut loss. The difference is that, after closing your losing positions, you open new positions in the same direction as market price movements.
Averaging
This method requires extra capital in order to maintain the position that you have opened which turned out
move against market prices.
If you want to take action averaging, you open a new position. But in this case, it is not like switching that closes your losing position and then opening a new position which is opposite to your previous position on the grounds the price has moved down. In averaging, you do not close our positions that have been opened (in this case Open Buy) and you even add them by opening new positions in the same direction that is Open Buy again.
Why so? Didn’t you have Open Buy before and suffered a loss, so why do Open Buy again?
The reason is simple, you hope that because the price has gone down, the price will rise again so that when you do the second Open Buy it is expected that the price will move up even beyond your first Open Buy. Thus, you can get a double profit.
The third risk management above is very simple and easy to implement. However, there is no guarantee that you will never experience loss after implementing those tips. If you look closely, the three risk management above rests on one thing, that is the ability to analyze price movements. Risk management can never even be effective if you are not able to do the analysis correctly and accurately. Thus, knowing the analysis is a necessity in starting investing in forex trading. Good luck, traders!
Read more: The Importance of Risk Management in Forex
