Risk and Money Management in Forex Trading that Trader make
Trading forex can be a rewarding and interesting challenge, but it can also be discouraging if you are not careful. Whether you are new to forex trading or an experienced expert, avoiding these 10 Common Mistakes of Risk and Money Management in Forex Trading that trader Make.
Click on Below Video to Watch the Risk Management Strategies for Forex Traders
10 Mistakes of Risk and Money Management in Forex Trading
1. Watch the Floating Profit and Loss
While being in a trade, do not watch account go up and down with every tick.
It results in emotional trading decisions.
2. Thinking about What You Can Do With Current Profit or What You Could Have Done With the Loss You Could Take
The only risk what you are can lose comfortably.
Trading too big results in trading decisions that are based on fear and greed, the two biggest enemies of traders.
On the other hand, trading too short makes you muddy and more likely to abandon trading rules and risk management.
3. Not Paying Attention to Correlations and How They Increase Your Risk
Financial markets are highly correlated.
Traders often think that by taking some trades in different instruments they are diversifying and lowering the risk.
What these traders don’t realize is that especially if your trading instruments are related they often move in sync and instead of decreasing your risk, you are increasing it.
4. Using a Fixed Stop Loss with the Same Pip Amount on Different Instruments
Traders who use a fixed stop loss with the same pip amount on different instruments and different timeframes have not understood the rules of the game. There are no other shortcuts to trading success and developing a sophisticated and tested the stop-loss strategy is as necessary as knowing when to enter a trade.
Watch below video for Mastering Stop Loss in Forex Trading
5. Underestimating the Significance of Drawdowns and Their Statistical Likelihood
Most of the traders think that if trading does not has post-trading analysis, Not thoroughly learning one method and Not using a trading journal – losers in a row, and it cannot be a good trading strategy.
6. Adding to Losing Positions
Learn to take the losses because they are normal. Trying to delay the realization of losses is the death sentence for the trading account.
7. Risking an Arbitrary Number of 2% on Each Trade
Setups vary in quality, and your position size should account for that. Learn to differentiate between different qualities of setups and entries and use a professional position sizing approach.
8. Ignoring the Importance of Spread
The research discovered that only about 1% of all day traders could predictably profit net of fees. Spread is the cost of doing business as a trader and, therefore, finding ways to minimize the costs should be high based on the priority list.
9. Holding Losers While Selling Winners
The research discovered the so-called disposition effect which states that on average, traders sell winning trades 50% faster then they hold the losing traders.
10. Trading an Account that is Not the Right Size for You
Whether the trading account is too small or too big, both scenarios are less than the optimal and have the negative effects on trading performance because they are the cause of emotional trading decisions.