The article will help you become a successful trader. Here, you will know about serious risks in financial markets and how to confront them.
Golden rules of risk management in trading
Risk management is a set of certain rules, following which reduces the risks associated with exchange trading and allows to stay on the market for a certain time. Even if luck brings you down, simply following these rules will make your financial losses not critical. For a full understanding of the above material, it is strongly recommended to read this scholarship essay on the subject.
Rule number 1 – do not try to be in the market all the time
Often when a novice trader starts working on a real account, it becomes impossible to drive him away from the trading platform. No matter what the situation on the market is, he will sit and make deals. If the trading strategy does not give signals, he will stop following it and, at best, find another trading strategy, or at worst, he will make transactions randomly.
This is a guaranteed key to lose your deposit. Remember, even if you are deceived by the scalper’s lot and your choice is a minute timeframe, do not make more than 5 transactions per working day at the beginning of your work. It does not matter what result these five trades led you to – if success was not on your side, do not try to recoup. When five transactions led to a loss, it will be brought to ten.
At the beginning of your trading career, you will make mistakes in any case, and the fewer transactions you have made during your trading day, the fewer chances you have to make the mistakes. As soon as you start to discover opportunities for earning money on trading stock assets, as soon as you have decided on the broker and opened a real cash account with him – stop, exhale, and continue to act slowly.
Rule number 2 – the minimum size of the working bet
If you start a trader’s career – get rid of your desire to take a risk. The bet of one-tenth of the total amount of the deposit is the border. Make the amount of your transaction floating – let it be exactly 10% of the deposit. If it is $500 – your bet is $50. If the transaction was successful, and after it, your deposit was $580 – the purchase amount of the next option will already be $58.
What does such a floating transaction system give? If suddenly the market situation does not match your view, luck will not be on your side, and the number of losing trades increases – in any case, you have 10 deals in stock, and it does not matter whether you have $50 in your account or $500. This system should not be used only in the event that you have already mastered how to work in the market. Then the size of the bet should be reduced in percentages and fix it.
Rule number 3 – don’t act emotionally or irrationally
There was conducted a study of the reasons for the failure of work in the market among young active traders with high intelligence. Their work began with successful transactions, then there were even more successful transactions, and in the end, they lost everything they earned. Why did this happen? The answer is simple – they acted emotionally.
This phenomenon is particularly inherent to men under the age of 35. The study also noted that older men and women of any age rarely act emotionally when trading. They are prudent in every transaction.
Try not to lose your head from your success. After several profitable trades in a row, do not lose your head, but on the contrary – be more cautious and stop trading until luck has knocked you out of the saddle.
Rule number 4 – know your enemy – tilt – and how to deal with it
If during the trade, you have suffered a serious setback or a deal that absolutely should have become profitable at the last second brought a loss, you will know exactly what tilt is. This term came from poker and means a change in consciousness and subsequent inadequate reaction to the events taking place. In such a situation, the trader tries to more quickly pay back the losses and return lost profits, while he rushes from one asset to another, making, even more, mistakes and losing everything in a short period of time.
Tilt can happen even with the most experienced stock exchange trader. Tilt is your enemy, so try and predict it’s coming.
Rule number 5 – keep records and statistics
Do not neglect such a simple thing as keeping a diary of a trader where you should write down all your transactions indicating the currency pair, the time of the transaction, the expiration period, and the result. It will not be superfluous to draw up a linear chart showing fluctuations in the size of your deposit by days and write down the basic rules of your trading system in the diary. Statistics and accounting are a powerful tool that can identify weaknesses in your trade.
Risk management in trading on the exchange will make any strategy profitable
If you use the above-mentioned management rules in trading, you can make any trading strategy successful.
Have you ever wondered why one and the same trading strategy can have both positive and negative reviews? It is the compliance with simple rules of risk management in trading that separates the lucrative trader from a loser in the financial market. Thus, you can create a kind of formula for success in trading –risk management plus any acceptable trading strategy equal to success in trade with financial instruments.