Main Rules Of Risk Management in Forex Trading (Part II)

After publishing the article Risk Management In The Forex Market, we got feedbacks from our readers asking for providing more information about this subject. Risk management is a very important element in Forex Trading. Singapore Forex traders discuss it a lot in different trading forums and communities. Following the requests of our readers, we continue this subject, providing you with more rules for risk management when trading in the Forex market.

Rule 4: Do not invest all your money into a single trade

Before the making an order, make sure you have enough capital to cope with an unexpected loss. If you think that you will always win because you have managed to close few successful trades before, then you are too optimistic. Generally Forex market is rarely as good as it might seem at a first glance. If the market suddenly turns against you, it is better if you have some capital available to compensate the small losses or market’s demands for additional margin.

Rule 5: Use stop-loss

Predetermined stop-loss limits the amount of risk and reduces your losses in a rapidly changing markets. Every Singapore trader must have a strict rule of stop-loss , for example, you must get out of the market, if lose 5% -7% of the trade. Even the most experienced and successful Singapore Forex traders use stop orders to limit their risks. Make and follow a rule of leaving the market, if your plan does not work. Apply your stop signals in order to protect your capital.

Some Forex Singapore traders use stop-signals in certain time period. If the market does not behave as you have expected during a certain time period, exit the market, even if you do not lose money. Such stop signals remind you to leave the market, unless you know what’s really going on.

Rule 6: Trade with the trend

It is unlikely that you will have a loss if you follow the trend of the Forex market. The direction of the market does not matter as long as you have an open position on the appeared trend. If you open a not successful position, then reduce the amount of risk according to your system.

Rule 7: Don’t be afraid to make mistakes and suffer losses

An important aspect of risk management is the ability to recognize that you are wrong, and leave the market on time, even if it means losing money. Even the best Forex traders from time to time suffer losses. But we all hate to admit our mistakes, so this rule is difficult to follow. The principle is simple: let the profits accumulate and the losses reduce. Reduce the amount of risk if the market moves against you. Do not add to a losing position, hoping to compensate the loss. If you do not understand what the market does, exit it as soon as you can. Also, do not place a new order immediately after losing the deal in order to conclude the latest transaction in hope of revenge – you must first cool down your emotions and disappointment.

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