Jul 16 2011
Forex market is a challenging and risky market, but there are a few steps you can follow in order to decrease your risk in Forex:
1 – Always use a stop loss. This stop loss can be a mental point when you decide that you’ll exit the trade, or a stop loss order that you place on your broker. No matter what your choice is, a stop loss point is a good way to avoid high risks. It allows you to avoid fear and greed, and to cut your losses before they rip off your account.
2 – Use risk management rules. Don’t risk more than 5% of your account in a single trade. If you risk too much, you can suffer big losses in a matter of days or even hours. If you decide to risk no more than 5% of your account in a single trade, you won’t lose all your account unless you lose more than 20 times in a row.
3 – Trade with a solid and reliable broker. If you choose the wrong broker, that’s enough to be in a high risk situation. Don’t ever trade with unregulated brokers or brokers that trade against their clients. Make sure you trust your broker (and that you have good reasons to do so) before you open an account.
4 – Avoid trading during news releases. If you’re trading during a major economic release, you’re taking some high risks. The economic release can result in major volatility on the market, and if this volatility goes against your position, you’ll be in trouble. So, if you want to avoid higher risks, don’t trade during news unless you’re an experienced trader.
5 – Avoid day trading. Day trading is the most difficult technique to use in Forex. The market is open 24 hours a day and the day trader has to be experienced in order to manage his trades and to deal with all the stress that comes with day trading. It’s better to start trading in larger time frames so that you can trade with less stress and with better risk/reward positions.
6 – Trade with at least 2:1 risk/reward. This means that for every pip you’re risking, you’ll plan to win at least 2 pips. If your target is at least twice your stop loss, you can be wrong 50% of the times and still make money in the end.
7 – Keep learning and practicing as much as you can. This will allow you to minimize risks and to develop new and powerful strategies to make money on Forex.
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