Trading risk management
Be careful, your money can evaporate if you do not pay attention to trading risk management. Remember that forex trading investments that are classified as high risk. This means that forex trading has classified as high risk. One of the highest among any other financial investment instruments.
Risk factors that you should know before starting forex trading:
Have the possibility of losing money quickly. Flow of funds very quickly (very liquid). No trading method that can guarantee you 100% sure winner. There are many good trading method, but no one can guarantee 100% profit. Forex trading is not a “quick rich scheme” that can make You get rich quick without working hard. There is no success without hard work. Hard work is an integral part of those who experience financial success in life. Including those who succeed through forex trading.
It takes hard work to learn the analysis and market behavior so that we can guess the direction of price movements accurately. Likewise Mental needed extra when trading results do not correspond with what we expect.
Ask successful traders you know, whether they had experienced ups and downs in their trading. And the answer is almost certainly “yes”. Success is only provided for those who want to try and learn continuously meperbaiki himself. Well-related risks that must be faced if we want to start investing in forex, it needs special tips to minimize, or even reverse our position that was minus a positive return and make a profit.
Here are some tips and risk management that your biased take:
Cut Loss
An action to close your position opposite the movement of market prices. Cut loss is used to limit the losses so as not to cause even greater losses.
For example,
let’s say we’re opening our position on GBP / USD Open Buy on the price of 1.8000. Open a Buy position means we expect the price to rise above 1.8000, so we make a profit. Our expectations as the price moves up to 1.8100 so that we can obtain 100 points profit. But what power, turns out the price moves against what we expect. It turned out that the price goes down continually from 1.8000 to 1.7980 and still show a tendency to fall.
Well than we experience further losses and ultimately experience a margin call, the better the position is closed even though we bear the loss of 20 points (1.8000 to 1.7980 = -20 points). This action is called a cut losses to close money-losing positions in order to prevent greater losses.
Other Case Details:
Mr. A opened a Buy GBP / USD at 1.8850 5 lots. Mr A predicts that soon he could liquidate his position at 1.8900. Therefore he made to his position Risk Management: Stop Loss at 1.8800 and Stop Limit at 1.8900.
It turned out that the price goes down erratically. With all due consideration, Mr. A would like to close the position at 1.8825 for granted. So Mr A 25 point loss (1.8825-1.8850 = -0.0025)
Then:
Profit / Loss = (1.8825 – 1.8850) x 100 000 x Number of lots = -0.0025 x 100 000 x 5 = – $ 125 (Mr A suffered a loss of $ 125)
Switching
This action is similar to cut loss, but the difference after closing the position we are losers, we open a new position with the same direction as the movement of market prices. In the same case with a cut loss above, then we close our position at 1.7980 and then we open a new position Sell because prices tend to decline. Thus, let’s say if prices continue to fall overall reach 1.7900 then we experience loss of 20 points but gain profit by 80 points (1.7980-1.7900 = 80) so that the total profit we still get 60 points.
Case
Mr. X predict prices will RISE. So to get the benefits he decided to buy (Buy) in the hope prices will go up so he could sell at higher price and get the difference advantage. But it turns out instead of going up, even the price DOWN.
And after re-analysis, Mr. X finds estimates that the price will go up was WRONG. So what should he do? Rather than fight the market price and suffer a loss, after all, prices will fall further than he now decided to close its money-losing position Buy and Sell then open a new position (in the hope prices will fall). And it turns out prices continue to fall so that he had received benefits in excess of losses on a Buy position that he previously closed. Then he closed the Sell position and receive the benefits.
Tips For You: # Do it only if the prediction gain exceeds the switching losses to be closed first position. # If it turns out the price change was in accordance with the first prediction, then you will suffer a loss of 2 times, the first position and second position also
Case Details:
Mr. A opened a Buy GBP / USD at 1.8850 as many as 10 lots. Mr A predicts that soon he could liquidate his position at 1.8900. Therefore he made to his position Risk Management: Stop Loss at 1.8800 and Stop Limit at 1.8900. It turned out that the price goes down erratically. With all due consideration, Mr. A would like to close the position at 1.8825 for granted. So Mr A 25 point loss (1.8825-1.8850 = -0.0025)
Then:
Profit / Loss = (1.8825 – 1.8850) x 100 000 x Number of lots = -0.0025 x 100 000 x 10 = – $ 250 (Mr A suffered a loss of $ 250)
Then Mr. A again analyze and predict the price and known prices will continue moving down, then Mr. A opened Sell position as much as 10 lots. Not for some time the price down. In the end Mr A closes the position at 1.8740. Mr A gain 80 points (1.8820 – 1.8740 = 0.0080)
Then:
Profit / Loss = (1.8820 – 1.8740) x 100 000 x Number of lots = 0.0080 x 100 000 x 10 = $ 800
Overall results from two earlier trading is
Trading I = – $ 250
Trading II = $ 800
Profit = $ 800 – $ 250 = $ 550
Averaging
This method requires extra capital to maintain the position we have open that it moves against the market price. Say the same case with the example above Cut Loss, then if we want to take action averaging then we open a new position but in this case is not like switching a closed position we are losing money and then open a new position is contrary to our previous position by reason prices have been moving down. In averaging, we do not close our positions have been opened (in this case Open Buy) and even we add many new positions open in the same direction, namely the Open Buy back!
Why so?
Do not we have done previously and Open Buy a loss, then why are we doing Open Buy again? The reason is simple, we would expect because the price has come down then the price will go up so that when we take action Open Buy a second expected price moves up and even surpass Open Buy our first so that we gain a double advantage.
Case Example:
Mr. X predicts that prices will go up so he opened a Buy position. But the price was moving down. Mr. X immediately analyzed again and the conclusion is simply the price will come down shortly and will go up according to the analysis before he decided to open a new buy position when the price falls when prices rise again so that he not only has a position of profit but 2 at once. Sure enough, not long before prices go up and then Mr. X closes its second position, the first and the second.
Case Details:
Mr. A opened a Buy GBP / USD at 1.8850 5 lots. Mr A predicts that soon he could liquidate his position at 1.8900. Therefore he made to his position Risk Management: Stop Loss at 1.8800 and Stop Limit at 1.8900. Apparently the price corrected and move down. Mr. A re-open position Buy GBP / USD at 1.8825 as many as 10 lots. He also put Stop Loss at 1.8800 and Stop Limit at 1.8900.
Then not long after the price re-corrected and touched 1.8900. Thus, Mr. A gets 2 benefits from two positions that have been opened:
Position I: Profit / Loss = (1.8900-1.8850) x 100 000 x 5 lots = $ 250
Position I = $ 250
Position II: Profit / Loss = (1.8900-1.8825) x 100 000 x 10 lots = $ 750
Position II = $ 750
The number two positions Profit: $ 250 + $ 750 = $ 1,000
The third risk management above is very simple and easy to do. So, how sadly we miss out just because we do not know the things above. But does knowing these three risk management we certainly have never experienced loss?
The answer is of course not. If you look at the three above risk management relies on one thing: our ability to analyze price movements. Yes, it’s the core of forex trading. Risk management does not even become effective when we are not able to analyze correctly and accurately.
So, knowing the analysis is a necessity in starting an investment in forex trading. There is still much to be learned in entering and investing in the world of forex. We have just learned the outer portion of this investment. The important thing is you learn and keep learning.
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