Any competent forex trader should be able to tolerate risks, limit losses and stay calm no matter what level of difficulty he has to encounter while trading. Forex investors expect to cut losses and earn profits at the same time. But the most important challenge in forex trading is to survive in the market despite all the odds. Managing your risk exposure helps you to gain an edge to survive in the volatile trading markets. Here are 4 tips to control your risk exposure in forex trading.
1. LEARN TO USE STOP LOSS
Stop loss is an important trading feature which saves your trading career every now and then. Imagine the market is going against you and a lot of money is at stake, stop loss would close the trade when the specified limit is reached saving your career and your capital.
Learn to use stop losses and make effective use of them. Know when and where to place stop losses. Sometimes, a stop loss could do more harm than good if one does not realize its full potential and characteristics.
2. POSITION SIZE MATTERS
If you are about to execute a huge volume of trades, you should be confident enough to carry on with them and be well aware of the consequences if the results are not favorable. Any small movement in the market against you can make a huge difference to your expected results. So, it is wise if you trade in small positions and earn consistent profits unless you are confident enough to be able to draw profits from larger trades.
3. CLOSE THE TRADE WHEN THE PROFIT IS REASONABLE
Forex markets are highly volatile and unstable. The way the markets move is quite unpredictable even for the most expert traders in the field. When you open a position, it is advisable not to keep it open for too long. If you witness the market making a favorable move, close the trade when the profit is reasonable. If you are reluctant to close it because of your greed to make more money, the market may make a sudden reversal making you lose all the profits and a portion of the invested capital!
4. EMOTIONAL MANAGEMENT
Emotions are not considered to be a trader’s best friend. Traders should be able to control their emotions before they start to trade. The tendency of making up for a lost trade in the next trade should be completely avoided. Traders should not take vengeance against the market and start to overtrade which will not do any good for their trading career. It is okay to lose a trade sometimes. You have got nothing to prove. Remember, trading has nothing to do with emotions.
Trading is all about how efficiently you manage your risks. Use every opportunity to make profits & improve your risk management skills. The more efficiently you manage your risk exposure, the better are the chances for you to be a successful & consistent trader.
