3 Types of Risk Management in Forex
You may have heard about the experience of novice traders who initially lost a lot, so they gave up and stopped trading immediately. Do you know? Incidents of large losses like this are usually due to a lack of good risk management, as a good trading strategy alone will not be sufficient without good risk management. This time MIFX will explain three Forex risk management methods that you can implement in the following trading plan.
Stop
loss
The
easiest way to reduce the risk of loss is to cut the loss or stop loss. Before
making any transaction, first set your loss limit using the stop loss feature
available in MIFX. The recommended loss limit is 2-5% of your balance. Now,
with this feature, your transaction will be closed automatically if the price
touches the stop loss limit.
So how
do we cover this 2-5% loss? You can set a higher profit target on the next
trading opportunity, or use the second method of risk management: switching.
Converts
The
switching technique arises from the advantages of forex with two-way trading
opportunities. The way it works is to change the position from buy to sell, or
vice versa. For example, you opened a long position, of course you hope that
the price will strengthen so that you can make a profit, right? However, it
turns out that the price did not move up according to your analysis, until it
went down to 2%. When this happens, you will close your transaction and open a
short position to cover losses from previous transactions while seeking
potential profits.
This
switching technique requires careful and confident analysis. If you are not
sure that your second transaction will generate a profit that can cover the
loss, just cut the loss without switching.
Average
cost
Finally,
there is the technique of calculating the average cost. This technique deviates
from the view that it is impossible for market prices to move in one direction
forever. Using the average cost calculation technique, you will trade regularly
and steadily without being affected by price movements. So in the end you get
the average chance of profit and risk of loss or average.
Average
cost is a somewhat extreme style. This technique is more recommended for
traders who have more money to trade.
Of the three types of techniques listed above, which one do you think is the most interesting to try? In addition to managing the risk of loss, do not forget to set a profit limit as well, yes, so that your profits are protected from price changes that can come at any time.