All About Risk Management

Here are four blunders you must avoid at all costs while trading:

• Do not Invest without a proper strategy.

Emphasizing the necessity of having a trading strategy is simply not enough. Trading without a strategy is nothing more than a game of chance waiting for a terrible outcome. 

• Diversify your trading portfolio.

One of the most crucial aspects of investing and trading is diversification. It indicates that you don’t invest all of your money into one item; it’s important to diversify your portfolio. However, while trading Forex, a large number of pairings are connected. Your transactions may appear to be diverse, but they really coincide and will proceed in the same direction. If your analysis is accurate, you could gain a lot of money, but if it isn’t, you could lose a lot of money. Make sure that the deals you make during the day are unrelated.

• Going overboard after a few wins/losses.

Even if you have a risk-management strategy in place, you may find yourself in a situation where you feel compelled to go all in. It can happen if you’re on a losing streak and try to win it all back, or if you’ve had several winning trades in a row and feel unstoppable. In any case, if you do not adhere to risk management, you are placing yourself in a position to lose a lot of money. Stick to your management approach no matter what. Taking a 1% risk every trade and a 3% risk per day is advised. 

• Risking more than one can bear.

This blunder stems from the previous one. It’s simple: if you lose more than 1% of your account as a result of a stop-loss, your risk management is incorrect, and you risk losing your account. If you lose several times in succession, your deposit may be forfeited. 

To reiterate, trading is not only an exercise in analysis. It’s also about how you operate when you’re under pressure. And how you act when you’re on the winning or losing end of the game.