Who likes losing? It sure ain’t me! And I bet you hate it too!
Sadly, as much as we would love to log only win after win on our trading journals, the typically volatile and unpredictable nature of forex can get in the way of our winning streaks.
There will be moments when a trade you’re so confident in just suddenly blows up in your face! You will make mistakes and losses will happen. Don’t be too hard on yourself though! It can’t be helped. The markets are random and you are only human.
So if you can’t control how many times you’ll be on the wrong side of the trade, then the least you could do is to CONTROL YOUR RISK.
For my awesome folks who have been trading for a while, any tips on managing and controlling your risk?
I’m trading with a fixed Risk Reward Ratio of 1:2 with a fixed monetary risk per trade. I’m limiting myself to 2 trades per day. One during the opening of europe session and the other one during opening of the new york session.
This way i prevent myself from overtrading during times the market isn’t favorably towards my strategy and i’m able to survive with a minor losing streak until the market condition changes again.
To further adress my mental health during losing streaks i like to play around with a coin flip generator to remind me of the randomness of the markets you already mentioned above (my winning percentage is around 50%). This way i stay with my strategy even if i lose 7 times in a row.
"See, the longer you hold on to your trade, the more volatility it gets exposed to. That is, a longer holding period is equivalent to an increased position size, as it exposes a trade to a wider range of possible price movements."
That piece of wisdom was taken from the article above. One more reason why I am partial to scalping.
Anything over 5mins timeframe seems like guess work to me and I don’t feel like I’m in the driving seat.
I like to see where it’s going and act quickly, not sit there wondering
I get you. My main timeframe is also the 5m. But i wouldn’t describe me as a scalper. A scalper for me is someone who rapidly opens and closes positions and books small gains which add up over time or closes losing positions immediately while they are still small. This is why i recognized you as a scalper. I could never do this. Way to stressfull.
There seem to be varying definitions of scalper, I wouldn’t say I’m a hardcore scalper by your definition.
I do use the 5m also the 1m, but I tend to look for micro trends - say 10-20 points on the major indices.
Yes, 1m timeframe all day would be stressful, but a couple of hours is not too bad.
I think the main criterion for getting out of a trade, is that if the reason for getting in is no longer valid. In other words, it is not working as anticipated.
I do use a stop loss, but only as a hard stop.
As Al Brooks says - “My stop loss is there in case I feint or the internet goes down”
You can manage your risk by implementing various risk management strategies, such as using a stop loss in your trade to avoid loss and manage your emotion. Don’t get greedy or over-trade. It will never end well.
To control my risk, I first see how much capital am I risking in this trade? If that number makes me uncomfortable, then I scale down my position size, otherwise I’m good to go. I guess that first step to managing risk is to quantify what and how much your risk is.
Understanding the market, using stop loss in every trade, swearing by a fixed reward:risk ratio, all of these are important to keep your risks of trading in check.
I believe 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 and having a grasp over leverage with good trading plans helps to control the risk exposure.
On a scale to measure risk factor, I’d say scalping is really risky. The high volatility along with the spread charges makes scalping a game for professionals. Newbies trying scalping end up losing too much capital than what they actually gain in profits.
We can use portfolio strategies to control risk. For example, let’s consider currencies that are not related to each other in the basket. In this way, possible severe losses on a currency can be avoided.
Many traders use the ‘buy low, sell high’ strategy which is quite popular amongst beginners and experts. It is also a great way to stay focused and control risk.
Well, Forex trading can be a risky business, but I am suggesting you a few things you can do to minimise your exposure to risk.
-Make sure you have a clear understanding of the market and the factors that can affect currency values.
-Start with a small amount of capital and trade only a small portion of your overall portfolio.
-Use stop-loss orders to limit your losses if a trade goes against you.
If you are following these tips, you can help keep your risk exposure to a minimum and give yourself a better chance of success in the forex market.
