Risk Management For Easy Forex Profits: Strategies For Californian Traders

Risk Management For Easy Forex Profits: Strategies For Californian Traders

Risk Management For Easy Forex Profits: Strategies For Californian Traders – Trade is the exchange of goods or services between two or more parties. So if you need gas for your car, then you would exchange your dollars for gas. In the old days, and still, in some societies, trade was done through barter, where one commodity was exchanged for another.

A business might go like this: Person A will fix Person B’s broken window in exchange for a basket of apples from Person B’s tree. This is a practical, easy-to-manage, everyday example of doing business, with relatively easy risk management. To reduce the risk, Person A could ask Person B to show his apples, to make sure they are good to eat, before fixing the window. This is how business has been for millennia: a hands-on, thoughtful human process.

Risk Management For Easy Forex Profits: Strategies For Californian Traders

Risk Management For Easy Forex Profits: Strategies For Californian Traders

Now enter the world wide web and suddenly risk can become completely out of control, in part because of the speed at which a transaction can occur. In fact, the speed of the transaction, the instant gratification and the adrenaline rush of making a profit in less than 60 seconds can often trigger a gambling instinct that many traders can succumb to. Therefore, they might turn to online trading as a form of gambling rather than approaching trading as a professional business that requires proper speculative habits.

How To Construct And Write Up Forex Trading Plans

Speculation as a trader is not gambling. The difference between gambling and speculation is risk management. In other words, with speculation, you have some control over your risk, while with gambling you don’t. Even a card game such as Poker can be played with either the mindset of a gambler or the mindset of a speculator, usually with completely different results.

There are three basic ways to make a bet: Martingale, anti-Martingale or speculative. “Speculation” comes from the Latin word

In a Martingale strategy, you would double your bet every time you lose, and hope that eventually the losing streak ends and you make a favorable bet, thus recovering all your losses and even making a small profit.

Using an anti-Martingale strategy, you would halve your bets every time you lose, but you would double your bets every time you win. This theory assumes that you can take advantage of a winning streak and profit accordingly. Clearly, for online marketers, this is the better of the two strategies to adopt. It is always less risky to take your losses quickly and add or increase your trade size when you win.

Risk Management In Forex Trading

However, no trade should be taken without first stacking the odds in your favor, and if this is not clearly possible then no trade should be taken at all.

So, the first rule in risk management is to calculate the probability of your business succeeding. To do this, you need to understand both fundamental and technical analysis. You will need to understand the dynamics of the market you are trading in, as well as know where the likely psychological price trigger points are, which a price chart can help you decide.

Once a decision is made to make the trade, then the next most important factor is how you control or manage the risk. Remember, if you can measure the risk, you can, for the most part, manage it.

Risk Management For Easy Forex Profits: Strategies For Californian Traders

Stacking the odds in your favor, it’s important to draw a line in the sand that will be your cut-off point if the market trades at that level. The difference between this cut-off point and where you enter the market is your risk. Psychologically, you have to accept this risk before you even take the trade. If you can accept the potential loss, and you are okay with it, then you can consider the trade further. If the loss will be too much for you to bear, then you must not take the trade, or else you will be severely stressed and will not be able to be objective while your trade continues.

The Role Of Risk Management In Scalping Forex Strategies

Since risk is the opposite side of the coin to reward, you should draw a second line in the sand, which is where, if the market trades to that point, you will move your original cut line to secure your position. This is known as sliding your stops. This second line is the price at which you break even if the market cuts you out at that point. Once you are protected by a flat stop, your risk is reduced to almost zero, as long as the market is very liquid and you know your trade will be executed at that price. Make sure you understand the difference between stop orders, limit orders and market orders.

The next risk factor to study is liquidity. Liquidity means that there is a sufficient number of buyers and sellers at current prices to easily and efficiently take your trade. In the case of the forex markets, liquidity, at least in the major currencies, is never a problem. This is known as market liquidity, and in the forex market, it represents approximately $6.6 trillion per day in trading volume.

However, this liquidity is not necessarily available to all brokers and is not the same in all currency pairs. It is really the broker liquidity that will affect you as a trader. Unless you are trading directly with a large forex trading bank, you will most likely have to rely on an online broker to hold your account and execute your trades accordingly. Questions related to broker risk are beyond the scope of this article, but large, well-known and well-capitalized brokers should be fine for most retail online traders, at least in terms of having enough liquidity to effectively execute your trade.

Another aspect of risk is determined by how much trading capital you have available. Risk per trade should always be a small percentage of your total capital. A good starting percentage could be 2% of your available trading capital. So, for example, if you have $5000 in your account, the maximum loss allowed should be no more than 2%. With these parameters, your maximum loss would be $100 per trade. A 2% loss per trade would mean you could make a mistake 50 times in a row before you wiped out your account. This is an unlikely scenario if you have a proper system in place to stack the odds in your favor.

Minimum Capital Required To Start Day Trading Forex

The way to measure risk with a trade is with your price chart. This is best demonstrated by looking at a diagram like this:

We have already determined that our first line in the sand (stop loss) should be drawn where we would cut out the position if the market were to trade at this level. The line is fixed at 1.3534. To give the market some room, I would set the stop loss at 1.3530.

A good place to enter the position would be at 1.3580, which, in this example, is just above the high of the hourly close after a failed attempt to form a triple bottom. The difference between this entry point and the exit point is therefore 50 pips. If you trade with $5,000 in your account, you would limit your loss to the 2% of your trading capital, which is $100.

Risk Management For Easy Forex Profits: Strategies For Californian Traders

Let’s assume you are trading mini-lots. If one pip in a mini-lot is equal to approximately $1 and your risk is 50 pips, then, for each lot you trade, you risk $50. You could trade one or two mini-lots and keep your risk between $50-100. You should not trade more than three mini-lots in this example if you do not want to violate your 2% rule.

Where To Take Profit When Day Trading (exit Strategy)

The next big risk magnifier is leverage. Leverage is the use of the bank’s or broker’s money rather than the strict use of your own. The spot forex market is a highly leveraged market because you could put down a deposit of just $1,000 to actually trade $100,000. This is a 100:1 leverage factor. One pip loss in a 100:1 leverage situation is equal to $10. So if you had 10 mini lots in the trade, and you lost 50 pips, your loss would be $500, not $50.

However, one of the great advantages of trading the spot forex markets is the availability of high leverage. This high leverage is available because the market is so liquid that it is easy to carve out a position very quickly and, therefore, easier compared to most other markets to manage leveraged positions. Leverage of course cuts two ways. If you are exploited and you make a profit, your returns are increased very quickly but, on the contrary, losses will also erode your account just as quickly.

But of all the risks inherent in trading, the most difficult risk to manage, and by far the most common risk blamed for a trader’s loss, is the bad habit patterns of the trader himself.

All traders must take responsibility for their own decisions. In business, losses are part of the norm, so a trader must learn to accept

Understanding Forex Risk Management

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