We already touched on risk management in this course when discussing trade amounts and making trades. Let’s review and summarize the tips that will help you maximize profits and minimize losses.
1. Trade only with money you can afford to lose. Ensure you are trading with funds that you don’t need in order to survive.
2. Choose wisely how much to spend on one trade. To keep your risks in check, don’t risk more than 10% of your deposit in one trade. It’s generally recommended to spend between 1% and 5% of your trading account balance on a trade.
3. Diversify. Spread your trades across different assets, such as currency pairs, indices and metals. Diversification can help balance losses in one area with gains in another, thus reducing the overall risk to your trading portfolio.
4. Use Stop Loss and Take Profit. In Forex mode, use Stop Loss to limit your loss and Take Profit to lock in your profit. Set your Stop Loss at a level that provides the trade some room to fluctuate but also safeguards you from substantial losses. To grow your account balance, you should ensure that your potential profit (Take Profit) exceeds your potential loss (Stop Loss) in every trade. For example, if you set a Take Profit at $15, the Stop Loss can be three times smaller, like $5. Keep in mind that using a multiplier increases both potential profit and loss.
5. Develop a trading plan and adhere to it. This plan should outline your goals, risk tolerance, trading strategy and criteria for entering and exiting trades. By sticking to your plan, you can make more disciplined and rational decisions rather than being influenced by emotions or short-term market fluctuations.
When you know that you have thought out your risks thoroughly, you can feel calm and confident in reaching your trading goals. This approach keeps your finances in check and your head clear so you can trade profitably.
Next
In the next section, you’ll learn how to continue developing as a trader.