Forex trading has become widely popular despite the dismal statistics that over 90% of traders lose money. The prospect of taking a piece of the 3 trillion dollar daily pie which the foreign exchange market sees is strong and tempting. Yet the risks are also tremendous, as the statistics show.
The sad truth is that most traders fail to truly make their trading a business because they don’t apply basic Forex risk management principles. This is what truly separates the men from the boys in Forex and can have a huge effect on your long term results.
Here are 6 tips on Forex risk management, minimizing Forex losses and risk factors
1. Don’t put all of your eggs in one basket – This is true for any investment and Forex is no exception. Forex investment should only be part of your portfolio, not all of it. Another way to achieve diversification is to trade in more than a single currency pair.
2. Don’t over-leverage yourself – It’s easy and tempting to leverage yourself a 100 times over. It also makes it pretty easy to lose your shirt. Don’t take huge leverages. It’s easy to lose all of your deposit that way in just one quick fluctuation of the market.
3. The Stop Loss is sacred – Trading without a stop loss is like jumping out of a plane without a parachute. You’re going to get splattered and it’s going to be ugly. Also, once you set a Stop Loss, you never take it down. Otherwise, it’s like jumping with a parachute but never intending to open it.
4. The trend is your friend – Unless you’re a position trader and you plan to hold a position for years based on in depth economical analysis, you shouldn’t go against the trend. Remember, there are stronger players in the market. You’re not going to wrestle the market to the floor. What would you rather do, swim with the current or paddle in the opposite direction?
5. Educate yourself continuously – The best way to know Forex risk management rules and become a successful forex trader is to know how the market works. This is an ongoing thing, so keep at it.
6. Use software to help you – To achieve Forex success, make use of trading software and analysis programs which can help you make a better decision. These systems aren’t perfect, but you can still use them as advisors and something to fall back on.
Use these 6 tips and you’ll minimize your risk and become a more sensible, successful trader.