Risk management in forex trading is one of the most important pillars of trading. A trader should think about this before starting it. It is not a matter of how much profit a trader can achieve, but what is more important is how long a trader can survive in the highly competitive forex market.
Often you see examples of cases where a trader who has a good strategy and even trading in the best forex broker, but the transactions he does do not actually generate profits, but in the end it loses. This can only happen if a trader has poor money management. Examples that often occur are:
1. Not placing a Stop Loss.
2. Stop Loss is too small, so it is easily hit before the price reverses according to the trader's initial estimate.
3. Stop Loss continues to be widened in the hope that the trend will reverse according to the trader's initial estimate.
The essence of this is risk management in forex trading which should be known and carried out by every trader who wants to be successful in carrying out his trading activities. Even in this case, there are several factors that are still under a trader's control, namely capital, account type, lot size, frequency, risks exposure.
By knowing and setting the parameters above, traders can find out how much risks each trade is and how long the trader can survive even in the worst conditions. The pips specified for the stop loss also varies depending on the number of lots traded by the trader.
Understanding the Risk Management in Forex Trading; RRR Management
Everyone knows that gambling is not a good thing to do, and statistically, gamblers lose more at gambling. Forex trading can lead to being done speculatively without the use of proper risks analysis and management.
There is a risks management concept called Risk Reward Ratio (RRR), which is a comparison between risks and the expected results of each transaction. Usually, the RRR ratio is determined to be between 1: 2 or 1: 3, or under certain conditions it can be 1: 1, for a risk-to-outcome ratio.
If this risk management is accompanied by a good strategy, it is not impossible that the winning percentage is greater than 50%. If the strategy is good, why not just adopt a more aggressive ratio like 1: 4 or 1: 5?
By setting the RRR aggressively, the profit target will become more difficult to achieve, and often before the market approaches the profit target, it will reverse and hit the stop loss instead. Another risk is that the number of transactions will decrease because traders tend to wait for large profit targets to be reached, which of course will take time.
Determine the Exit Plan
Many strategies cover entry positions or entry plans, but determining an exit position or exit plan is just as important as determining an entry position, or even more important because the profit or loss you receive really depends on the price when you exit the transaction position. This is the risk management in forex trading that you should pay attention to.
Traders can use RRR risk management as the basis for setting out positions, either take profit or stop loss. It's also a good idea to define these targets on the chart when placing orders. Setting targets mentally can only be done if the trader is truly able to master the three pillars of trading well (Mind, Money, Method).
If you join the Didimax forex broker, then you can learn about the risk management mentioned above. Our platform provides free forex education so that you become an adept trader. By learning in our platform, you can be one of the professional traders.
By understanding the various techniques or strategies that you can do in carrying out trading activities, hopefully, it can benefit your daily running of forex trading. That is a risk management in forex trading that you can practice, whether you have not started it, or when you are in a position to get stuck when doing it.
