In trading, risk and profit are inseparable things. The greater the profit potential, the greater the risk. However, you will not get a profit if the risk you get is the same or even greater than the potential profit. Thus, you certainly need to minimize trading risks to improve your profits.
Check out the right ways to minimize trading risks:
Avoid overtrading
Did you know that many successful traders have a percentage of winning trades ranging from 40 – 60%? This is due to the nature of the forex market which is completely unpredictable. The more often you trade without preparation and clear goals, the greater the potential risk comes to you.
This is influenced by the fact that many traders feel impatient to immediately repay losses in the previous trading session, by opening new trading positions as soon as possible. According to Investopedia, overtrading refers to excessive buying and selling the currency pair. Thus, trading with a big emotional drive often makes you not do a good enough analysis and increases the likelihood of loss.
Limit your capital
You are advised to divide the trading capital you have into smaller amounts to limit losses. For example, if you have a total capital of USD 1,000, limit the use of that capital to USD 50 – 100 for each transaction.
In this way, the maximum loss that you might experience on each transaction will not make you immediately run out of capital. For maximum results, most traders use 10-20% of the total capital they have in each trading session.
Use the Stop Loss Feature in Every Transaction
When opening a new trading position, make sure you use the stop loss feature to prevent loss beyond control. In general, this feature will automatically close your trading position when the loss has reached the point limit that you have set previously. The average trader applies a maximum loss of 10-20% on the stop loss.
Focus on the Currency Pair
Sometimes, you will be tempted to place a trading position on a currency pair that is actively moving. However, you shouldn’t do this if you don’t understand the currency pair.
Therefore, the forex market is strongly influenced by various events and momentum that occur in the world. So, if you do not have enough sources of information about the currency pair, chances are that you will not be able to do enough analysis to anticipate possible movements that are contrary to your expectations.
Those are the four risk management tips that you can apply when trading forex online. To maximize the four tips, continue to increase your knowledge and trading skills so that you are more confident.
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