In the forex world, you must know how to reduce loss risks. Risks are an inseparable part of every business that is carried out. Likewise with forex trading activities that are being carried out at this time.
Risk management is a step taken to reduce it in order to maximize the profit that can be obtained. Implementing good management gives you full control over your money and capital.
Simple Methods to Reduce Trading Risks
1. Cut Loss
This technique is done by closing the losing trades immediately in order to avoid the risks of trading with bigger losses. You can learn this in the best forex broker that will give you many tips about how to do it.
2. Switching
When you apply this method, then you need to close the losing position and immediately take a new position in the direction of the next price movement. This technique is used to get a profit and reduce loss risks, after a loss on a previously opened position. We highly recommend that you use a technique like this, when there are rapid and drastic changes in price direction.
3. Averaging
This one technique is actually dangerous to apply because you are basically going against the direction of the market. The basic idea of this technique is that the market will not move in one direction only. Because this technique is very risky, we do not recommend traders who have minimal funds to use this technique.
Money Management
Let's start the discussion about money management with a simple way to get started in order to reduce loss risks. For example, you have USD 10,000 in funds, then you set the maximum for each transaction at 5% per trade. That means the maximum loss you will get is USD 500 (5% x USD 10,000).
Thus, the risks for each transaction you make cannot be more than USD 500. Furthermore, in the first transaction, you incur a loss of USD 500 and have USD 9,500 remaining funds.
With the above rules, the risk per trade will be USD 475 (5% x USD 9,500). This method continues until the next transaction and the risk of 5% will be determined based on the last capital owned.
Risk to Reward Ratio
To reduce loss risks, after you have set trading risk restrictions, the next step is to set a profit target. So, if you set the limit to be 5%, it means that your target profit must be above that value. You can make a profit target of 6% or 10%.
Don't let your profit target be smaller than the predetermined amount of risk. Comparing the it with the potential profit that will be obtained is called the risk to reward ratio. So, with a risk of 5% and a target profit of 10%, it means that the risks to reward ratio is 1 : 2. A good system is one that has a win to loss-ratio of 2 : 1 or more.
Therefore, you need to have good money management in order to produce a better win to loss ratio and also join Didimax forex broker to learn more about it. By applying simple methods and techniques as above, it is hoped that you can reduce the risk of trading on the forex market. Thus, you can potentially get better profits and lower losses than before.
Do not let you not apply the methods and techniques above, especially for beginners who are just starting to make transactions on the forex market. Trading is not only about looking for a lot of profit, but also to reduce loss risks is the most important thing.
