Best tips for risk management


Fundamentals of Forex Trading

Trading is not an exact science. You can't doyour method of trading will produce profits
X and get Y every time. It is as much an artin the longer term is the state we have to
as it is anything else. There is no magicaspire  to.
formula. Trading is all about probability. It
is the art of correctly applying a set ofWhenever I think of risk management I always
carefully thought out rules and allocatingthink of an article I read on 925 CTA
the probability of that event to result inprograms between 1974-1995. It essentially
success.confirmed what I have long held to be true.
To summarize the report, of all the CTA's who
Each trade is an independent event. Themanaged funds, the most consistently
market does not remember if you lost or madeprofitable were the ones with the best risk
dollars  the  last  time  you  traded.management  systems.
The way you approach the marketTo trade successfully you have to take a long
psychologically has as much to do with yourlook at yourself. Ask and answer the
success  as  any  trading  plan.following  questions.
Risk management is crucial if you want toHow much equity do I need to start? How much
have any hope of becoming a successfulshould I risk on any one trade? Am I
trader. Matching a method of trading withundercapitalized?
your personality is the only way you will
ever  feel  comfortable  in  the  markets.As a trader you will probably fall into two
main categories, traders who like to trade
An adequately funded account is necessary --the breakout and traders who like to join the
not only to be able to take the trades youtrend once established. We could also add
want, but also so you don't feel every tradecongestion traders, reversal type traders and
is  a  live  or  die  situation.mechanical signal traders but for the vast
majority of traders you are going to fall
The journey to the road of successful tradinginto  one  of  the  two  categories.
will make you confront your deepest fears.
Your armor on this journey will beIf you are a trend trader, you like to define
confidence, knowledge and belief in yourselfa trend and then find a way in. This may be
that you can achieve your dreams. Never,with the aid of fibonacci retracement levels,
equate your success or failure in the marketsmoving averages, Gann or one of the other
with  who  you  are  as  a  person.many indicators available today. Your goal is
to enter the trend as early as possible with
As humans we have a natural tendency to trythe  least  amount  of  risk.
and influence our surroundings and events we
take part in. This is one reason we, as aBreakout traders like to enter the market on
species, have succeeded but it is also one ofthe breakout of a previously identified
the fundamental flaws we all have when tryingrange. This may be support/resistance areas,
to  achieve  success  as  a  traders.rectangles, triangles or one of the many
other chart patterns. The secret to this type
As traders we have to realize we have noof  trading  is  to  determine a valid break.
control over the market and if we accept that
then we have to accept that we can notDuring this lesson I have tried to give you a
influence  the  direction  of  the  market.glimpse into the world of trading. I have
also taken a slightly negative stance, as I
The problem of course is we have a tendencydon't want you to get unrealistic
to try and succeed and when inevitable lossesexpectations  of  what  to  expect.
come, it is easy to let those losses effect
us emotionally. Becoming euphoric when youOn the more positive side, trading is a
hit a winning streak is almost as detrimentalfascinating world, which will allow you to
as becoming depressed when you have a stringreally exercise your brain. There is no other
of  losses.arena where you get to play with some of the
best minds in the world on a level playing
We as traders have to try and achieve thefield.
state of impartiality. We have to accept that
we will have losses as readily as we willOnce mastered, if you can ever use that term
have wins. Reaching the stage where you canthen the possibilities are endless.
comfortably accept loss in the knowledge that



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