No matter how prepared you are, something will just go out of plan. This is true in real life and even so in the world of forex trading. If you cannot face this truth and refuse to work on a well-thought trading plan consisting of a strong action plan covering as many possibilities there is, then you will never survive in this trading battle.
Your survival plans all fall down into the risk management strategy that you will incorporate into your trades. You don’t just trade without knowing the risks surrounding it. You must be able to pinpoint the risks that you can willingly take and the things that you can do to manage such risks from greatly affecting your trades. Risk management strategies will help you in identifying and tackling the outcome of your trades that can somehow result in severe damage to your trading account.
Importance of Risk Management
Forex trading happens in an intense atmosphere. You will most likely be surrounded by constant surprise and all other uncertain things along the way. Dealing with the unknown can be emotionally exhausting and intimidating. You will find yourself being emotionally triggered at a point in time.
So to overcome these uncontrolled circumstances, you may have to adapt to certain rules and policies that will help you defeat these common problems.
Building a Risk Management Strategy
Since you’ve known how important it is to have a risk management plan, it is time to prepare in building a strong one. Risks, however, cannot be eliminated completely, all you can ever do is to make sure that you can acquire as limited damage as possible.
In Forex trading, all those uncontrolled elements are known as risks. These things will always go against our trades if they remain unknown upon your entry. Meanwhile, the controlled elements are the very tools that provide help in restraining and reducing risks, allowing us to obtain healthy trading. Here are the controlled and uncontrolled elements
Also Read: What Is The Right Way To Handle Risks in Currency Trading?
Uncontrolled Elements
Condition to Trigger
Missing a good chance for entry or entering a trade prematurely, you will never have the perfect conditions over these situations.
Available Information
No matter how informed you are, as a retail trader, you will definitely be short of acquiring relevant information for trade assessment.
Reasons For Price Volatility
As for price volatility, you can only see it when it already happened.
Unexpected News
There will always be unexpected news that can affect our trading positions. You cannot control it.
Breaching Final Target
You don’t have control over what oath the market will take.
Unaware / Non Trained
It is uncontrollable to be unaware of the things that might happen in your position. Sooner or later, you will spot a blind spot that will affect your trades.
Psychological State
Humans are emotional creatures. You can never control your emotions.
Controlled Elements
- Timing the Entry / Exit
- Analysis
- Plan Risk-Reward
- Position Sizing
- Known Economic News Releasing Time
- Trained Psychological State
- Setting Stops / Time To Trade
- Choosing an Asset To Trade / Developing & Following Your Trading Plan
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