| Many currency traders find it hard to follow simple | | | | more simple words, you should have an idea of how |
| risk management rules. Many times, they will turn | | | | much you are willing to lose if the trade goes against |
| winning positions into losing ones. They will be | | | | you. You should also know how much you are |
| surprised to find solid trading strategies result in | | | | expecting to make in a trade. A general rule of |
| losses instead of profit. | | | | thumb that you should apply is that your risk-reward |
| Regardless of how knowledgeable and intelligent a | | | | ratio should not be less than 1/2. With a solid |
| trader maybe about the markets, their own | | | | risk-reward ratio, you can eliminate a trade that is not |
| psychology and emotions will cause them to lose | | | | worth the risk by not entering it. |
| money. What can be the cause? Are the markets so | | | | Use stop loss orders to specify the maximum loss |
| enigmatic that only a few succeed in making profit? | | | | that you are willing to accept. Using stop loss helps |
| The most likely main cause is that many currency | | | | you avoid the scenario where you have many |
| traders commit the same common mistakes. | | | | winning trades but a single loss large enough to wipe |
| However, the good news is that these mistakes | | | | out all your profits. Using trailing stops can be good. |
| while they can be emotionally and psychologically | | | | There are two ways to place the stop loss order. |
| challenging, can be solved. | | | | 1) Initially place the stop loss at a reasonable level. |
| Most forex traders lose money. They fail to | | | | 2) Trail the stop meaning move it forward towards |
| understand and apply proper risk management rules | | | | profitability as the trade progresses. |
| in their trading. Risk management means knowing | | | | There are two recommended ways of placing the |
| how much you are willing to risk and also knowing | | | | stop loss order. One involves placing the stop loss |
| how much you are looking to gain in a trade. | | | | order 10 pips below the two days low of the |
| Without a sense of risk management, many traders | | | | currency pair. For example, if the EUR/USD recent |
| hold onto a losing position for an extremely long | | | | low was 1.1300 and the previous day low was 1.1200, |
| amount of time and take profit on a winning position | | | | then place the stop loss at 1.1190, 10 pips below the |
| far too prematurely. The net result is that traders | | | | two day low if you want to go long. |
| end up with more winning positions than losing ones | | | | Another volatility based method is to use the |
| but their account Profit/Loss (P/L) is negative. Keep | | | | Parabolic SAR indicator. It displays a small dot at the |
| these simple risk management rules in mind while | | | | point on the chart where you should place the stop |
| trading. | | | | loss. Parabolic SAR is a volatility based indicator. You |
| Risk-reward ratio is very important for you to know | | | | can find it on the charting software provided freely |
| and understand. As a trader you should calculate a | | | | by your broker. |
| risk-reward ratio for every trade that you make. In | | | | |