The possibility of losing money on the basis of unsuccessful trade transactions is a risk. And the risk management system is risk management, it is a set of rules that allows to optimize or completely avoid the emergence of risk situations in the conduct of trading operations in the foreign exchange market. The discovery of each new transaction is already a state of risk and the question of minimizing it or successfully avoiding it depends directly on the trader's ability to calculate it. Traders for risk management form their own risk management system so that restrictive rules allow avoiding the occurrence of deliberately unfavorable situations in certain transactions in advance.
Main rules of risk management in trading
1. Each entry into the transaction must correspond to the plan for its subsequent closing. It is not necessary to open transactions spontaneously, only on the basis of primary indicators supposedly promising benefits. The optimal option is to enter into transactions with a high profit indicator.
2. While working with indicators you should focus on stable signals rather than on random rollbacks. Short-term transactions can promise both profit and losses. It is better to enter into transactions with medium and long term prospects.
3. As a rule, they buy assets at the lower boundary of the horizon and sell at the top.
4. In any transactions you should strictly set the stop-loss limiter and take into account its boundary indicator in such a way that it does not exceed possible risks in case of a random trend fluctuation.
5. Don’t abuse the opportunities of leverage and your deposit. Don’t wait for your transactions to close by margin calls. It is better to maneuver with insignificant transactions, incur losses and receive a profit in compensation, than to go to bankruptcy.
6. Limit the entry into the transaction a certain percentage of the total deposit. Start at 2%, but do not exceed 10%. Always place a stop loss order for each trade. Micro accounts and cent deposits have their trade criteria, but they can also follow a similar scheme to avoid losses.
7. Track the positions of the balance skew and seek to equalize the transactions on profit/loss. Do not set the stop-loss and take-profit all the same for all trades by default. Always strive to achieve profit in a ratio of 1: 2 - 1: 3.
8. Strive for diversification of transactions by opening them in different positions for excellent duration. That is, enter the market for transactions short, medium and long term. However, don’t forget about your own inclinations. If temperament abhors too high or vice versa passive activity, it is accordingly better not to start operations with transactions for which you don’t have enough waiting time.
9. Try to turn off emotions on the fact of all transactions, both successful and unprofitable. To establish parameters of risks of losses of deposit funds during the trading day, week, month. Determine your ceiling of emotional stress, when nerves give up and get emotions. As a rule, this state is always equal to some sum of losses. If every losing trade spoils your mood, then it's better to completely refuse to participate in the bidding. And in general, it is worth immediately adjusting to the fact that the losses can by the end of the month amount to about 15-20% of the deposit amount. Which is quite normal under different market conditions.
10. Control the number of traded positions simultaneously. A large number of simultaneously open positions often make not very experienced traders nervous, which leads eventually to erroneous decision-making. Slowly and slowly enter the transaction, always evaluate its potential profitability/loses and don’t try to achieve only profit by all means. In some transactions, it is better to close them with a loss-making position than to try to pull them to zero level.
11. Vary with the number of simultaneously open transactions. In one day, increase their number by 1.5-2 times more than usual, and vice versa, lower this value. Tracking your own transaction history, you will be able to analyze your mistakes and successful operations. By reducing the number of open positions, you, of course, earn less, but the amount of losses will also decrease. Such balancing is better than direct depositing of the deposit in attempts to achieve a profit for each transaction.
12. When the loss-making ratio of the deposit starts from 40 to 60%, then it is worth stopping any activity on the currency exchange. Usually, this is a signal that the trader has ceased to adequately assess the current state of affairs and seeks to trade, relying on mythical luck. Analysis and forecasting in such trades are completely absent.
Risk management as a tool for self-discipline
There is not the slightest point in inventing rules. Hundreds of traders have worked out the general principles of trading even before you. The main thing to draw from the general rules are those that will best allow you to work in the foreign exchange market with the least losses and with a minimum level of risk. All the rules described were worked out in the real conditions of the foreign exchange market and didn’t let anyone down.