3 Effective Forex Risk Management Tips For Traders
In order to be able to trade forex for a living, you definitely have to know proper risk management in your trading.
In fact, the main reason most traders who did not make it in this arena are because of their poor risk and money management. Therefore you need to spend some time to learn the proper techniques to managing risk in your trades.
Below are some risk management techniques that I use:
1) Good Risk Reward Ratio: Having a good risk reward ratio can be very crucial to your income. It is best for you to aim for trades that are able to produce at least a ratio of 1:2. This means that your possible profit in a trade is twice the possible loss. With this ratio, one winning trade is able to withstand 2 losses which mean that you are still profitable even when you have a wining percentage of 50%. If you are able to trade with better ratio, you will be more profitable in the long run.
2) Never Risk More Than 3%: This is not a magic number but it is what I always stick to when I trade. I usually decide how many lots to enter based on the amount of risk my account can take and the stop loss to set. For example: If you are having an account of $10,000, 3% of it will be $300 and if you are trading a standard account where 1 pip represents $10, you will be able to enter 1 lot if your stop loss is set at 30 pips. If your stop loss is set at 15 pips, you will be able to enter 2 lots instead.
3) Movement of Stop Loss: Whenever I trade multiple lots, I will usually exit 50% of my trades when I attained certain profit level and then I will shift the stop loss of my remaining lots to the breakeven level. With this setting, I will still be profitable even when the price move back and stopped my remaining lots.
With these 3 risk management tips above, you will be able to trade profitably and become a full time trader one day.
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