Developing a strong risk management plan for your trading business
Most people start their trading careers without taking the proper training. After trading with real money, start complaining about the market. They think this market is rigged and no one can make a profit other than the big players. But do you think the big plays have the power to change the performance of the economy within a short time? The obvious answer is NO. If you read more about the Forex trading market, you will realize that this market is free from external manipulations. And the only reason for which the retail traders keep on losing money is lack of trading discipline.
To become good at trading, developing a strong risk management plan should be your priority. In this post, we are going to give you some amazing guidelines that will help you to create a professional risk management plan within a short time. So, let’s read the article.
Keep your expectations low
You should not be a greedy trader. Most people say that they are not greedy but they open the trading account with high leverage. Though many of us don’t even know what leverage is but this is another common reason for losing money. We must have strong knowledge about the basic terms used in the retail trading business. Leverage is nothing but the power given to you by a broker for trading. Instead of using the high leverage account, you should be trading with 1:10 or less leverage. By doing so, you will have low expectations from each trade. This will significantly reduce your risk factors and let you trade with much more confidence.
Forget about the 2% rule
You should not worry about the 2% rule of risk management. To keep your fund safe, you should be thinking about your risk tolerance level. Based on your investment, socio-economic standard, you must find your comfort zone. You should not be taking the trades with the money that you can’t afford to lose. If you do so, you will keep on losing money and there is nothing you can do to protect your trading capital.
Some traders often say that they can trade the market with high risk. But do you think a person will feel comfortable losing more than 2% of their account balance? The obvious answer is NO. We should impose a new 1% rule for managing the risk factor. Thus, we will never lose more than 1% of our account balance when the trade goes against us. So, use this technique and trade with the top brokers like Saxo Bank. After six month, you will feel the change in your performance.
Risk to reward ratio
Very few traders give importance to the risk to reward ratio factor. Most people think that they can trade this market without following the proper risk to reward ratio factor. On the contrary, the elite traders maintain a 1:4+ risk to reward ratio in each trade. However, some of the scalpers often trade the market with a 1:2 risk to reward ratio. But they have a very high win rate in the market. Being a novice trader, it would be wise to trade the market with a rational and high risk to reward ratio. Once you start following this rule, you should be able to reduce the stress in your trading profess and thus you will become more successful.
Trust your system
After developing a robust trading method, you may have to lose 10 trades in a row. There is nothing wrong to have a series of losing trades. You must have trust in your system and only then you can succeed in this profession. If you are not confident about your trading strategy, you should not trade with real money. And to gain confidence, you should stick to the demo trading account for few months. Keep following the rules no matter what you achieve from your trade.