How to Apply Risk Management in Trading
One of the keys to success in learning to trade is risk management. Risk is an accompanying factor of every business that will always be faced. The form of risk that is often faced by business people is loss. Not much different from other businesses that traders are currently living, even in trading the risk will still exist. Even if the trader has a very powerful trading strategy or uses reliable analysis but does not use risk management, it will all be in vain.
Forex trading is a form of business that contains a high potential for risk. Even though the risk cannot be eliminated by a trader, it can still be controlled, including behind the risk of a trader trading, the profit opportunities offered are no less high. To maximize the existing profit opportunities and at the same time minimize the occurrence of risk, risk management is needed or commonly known as risk management.
Applicable Risk Management Methods
Stop Loss
Using a stop loss is actually very easy, where traders only need to place a stop order below the buy price or above the price when they want to sell. For example, a trader buys USD/EUR at 100 and applies a stop loss at 95. So when the price approaches 95, the transaction will automatically stop and reduce more losses.
Limit Order
This technique is to place a position order at a predetermined price. When the price is not reached, the pre-determined position order is not executed and the trader will not suffer losses and costs.
Hedging
Hedging technique is an action taken to maintain the initial position that experienced Floating Loss (or profit) by taking a new position opposite of the old position according to the same number of lots.
Switch
The switching technique is an act of closing our losing position. Cut loss that is contrary to our prediction and then opening a new position following the price that moves against our hope that we can make a profit.
Average
The last risk management technique is to use averages. When going to apply this technique, traders will add to the same position at different prices. It is important to have a large amount of capital when applying this technique, but traders will also get a large profit by applying the average technique.
Good risk management techniques will provide great benefits to traders, especially novice traders who do not have much experience. What is even more important is that the potential to earn large profits will increase more than before.
Risk management techniques teach all traders that trading needs to be done taking into account various circumstances and conditions. Do not just carelessly open positions and do not pay attention to various conditions that have the potential to harm traders.
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