We have already discussed risk control in Forex on our blog many times. But it’s impossible to overdo when it comes to this matter. The basic rules of your risk management system need to be repeated like a mantra day after day. This is the only way to achieve success in the market.
The more carefully you try to stick to your system, the faster you’ll turn making right trading decisions into a habit. Let's talk about this today - good habits for successful risk management.
So today we'll discuss:
- Why risk management is important
- How to reduce the risk in trading
- What can help you stay concentrated and make the right decisions
Always Stick to Your Plan
The most obvious but most important advice. The habit of sticking to your plan is the only chance to be successful in Forex. Unfortunately, no matter how many times professional traders talk about it, beginners continue to make decisions based on luck or emotions. As a result, they systematically lose everything and blame it on a bad trading strategy, lack of luck, and so on.
This time, by “trading plan” I mean all the important attributes of a good trader:
- Long and short term goals
- Plan to achieve them
- Trading style and strategy
- Written plan for entering and exiting trades
- Risk management system
- Detailed trading journal
You need to schedule and learn to stick to a clear plan before you open your first trade. This will be a major step towards successful risk mitigation.
Look Before You Leap
Over time, trading becomes automatic. You open charts and instantly notice suitable trades. It takes a minute to confirm the signal and even less to open a trade.
Slow down. Before opening an actual trade, make sure to check all the entered parameters. Even experienced traders make mistakes because no one is immune from this. Check your order. Better twice. Only then open your trade. One wrong step can cost you a lot. Much more than you can lose in 2 seconds while re-checking.
Protect Your Profits
The market can turn around any moment. Nothing depends on you. The best thing you can do is protect your profits. If you are unable to continuously monitor charts, use the Stop Loss and Take Profit levels. This way you minimize your losses in case of a failed trade and guarantee the planned profit if you choose the right direction.
If the market is confidently going your way, you can gradually move the set exit points. Bring your Stop Loss to the breakeven point first and then start fixing the earned profit.
Take Breaks
An unusual but extremely useful way to manage risk is not to trade. But this is not a scheduled break. You need to leave trading in special cases:
- When you feel very tired. Your brain starts to work worse which reduces the quality of your decisions.
- When you are overly emotional. And this applies to both positive and negative feelings. Any trading decision driven by emotion can lead to significant losses.
To successfully control your risk level, you must be 100% calm and rested. Take breaks. Your body and account balance will be grateful to you.