The Importance of Risk Management
One of the fundamental ground rules of risk management in Forex market is that you should never risk more than you can afford to lose. That being said, this mistake is extremely common, especially amongst Forex traders just starting out. The Forex market is highly unpredictable, so traders who are willing to put in more than they can actually afford make themselves very vulnerable to Forex risks. Anything can affect the Forex market - the smallest piece of news can affect the price of a particular currency in a negative or positive way. Instead of going all in, it is better to follow a more moderate path and trade conservative amounts of capital.
#Forex traders need to have the ability to control their emotions. If you cannot control your emotions, you won't get the profits you want from trading. Market sentiment can often trap traders in volatile market positions. This is one of the most common Forex trading risks.Those who have a stubborn nature don't tend to perform well in the Forex market. They have a tendency to wait too long to exit a position. When a trader realises his mistake, he needs leave the market taking the smallest loss possible. Waiting too long will cause him to end up losing substantial capital. Once out, traders need to be patient and re-enter the market when a genuine opportunity presents itself. Fortunately, several methods are available to help Forex traders stay away from these mistakes and avoid loss. You should have a well-tested trading plan which includes all the details about risk management in Forex. The trading plan should be practical - and you should be able to follow its steps easily. Experts recommend that it is better to focus on higher probability trades. The Forex trading industry contains a high level of risk, so it isn't necessarily the best discipline for all investors. You also need to be able to pay extra attention to mistakes and engage in your trading activities on the foreign exchange market. The time and effort that you spend creating a trading plan is often considered as a great investment that will help towards a profitable future.
#The 1% percent risk rule is never risking more than 1% of your account on a single trade.
That doesn't mean if you have a $30,000 trading account you can only buy $300 worth of stock (1% of $30,000). In fact, you can use all your capital on a single trade, or even more if you utilize leverage. Implementing the 1% risk rule means you take risk management steps so that you (likely) don't lose more than 1%--$300 in this case--on a single trade. How to apply these risk management techniques, so you only risk 1% of your account on each trade, is discussed below.
Trading is tough, and no one wins every trade. The 1% risk rule helps protect a trader's capital from declining significantly when they aren't trading well or when market conditions are making it tough to make money. If you risk 1% of your current account balance on each trade you would need to lose 100 trades in a row to wipe out the account. If novice traders followed the 1% rule. By risking 1% of our own account, on a single trade, we are trading on our own terms. By that I mean you can make a trade which that gives you a 2% return on your account, even though the market only moved a fraction of a percent. Similarly, you can risk 1% of your account even if the price typically moves 5% or 0.5%. This is done using targets and stop loss orders.