Focus on the Risk
Forex trade risk is simply the potential loss or profit which occurs as a result of a change in exchange rates. To minimize the likelihood of financial loss, each investor needs to have in place some Forex risk management actions, strategies, and precautions. The Forex market is constantly changing, and this brings great risks that all traders have to work with. Therefore, the topic of Forex trading risk control is an increasingly popular subject amongst Forex traders.
Firstly, one of the fundamental ground rules of risk management in the Forex market is that you should never risk more than you can afford to lose. That being said, this mistake is extremely common, especially amongst traders just starting out. The Forex market is highly unpredictable, so traders who are willing to put in more than they can actually afford make themselves very vulnerable to Forex risks.
Make sure you understand risk properly. Forget about the size of the account. Looked at it from an operational perspective Risk Management is massive. You can have the best mentor or system in the world, if your Risk Management sucks your account will blow up. Unless you have a 100% working system, which doesn’t exist, you could blow up your account on one losing trade if your money management is not well thought off.
You can’t make gigantic profits without taking gigantic risks. A trading strategy that involves taking a massive degree of risk means suffering inconsistent trading performance and large losses.
Secondly, I refer to another important issue: our own personal Emotional Management and how we deal with this when under pressure. Forex traders need to have the ability to control their emotions. If you cannot control your emotions, you won’t be able to reach a position where you can achieve the profits you want from trading. Market sentiment can often trap traders in volatile market positions. This is one of the most common Forex trading risks. Those who have a stubborn nature don’t tend to perform well in the Forex market.
Fortunately, several methods are available to help Forex traders avoid these mistakes and to avoid loss. You need a well-tested trading plan which includes allthe details concerning risk management in Forex.
Finally, always try to understand the worst case scenario and also imagine where the biggest risks lie and especially accepting that risks are part of Forex trading. Understanding risk keeps you in the game.