What is risk management?
Risk management is the most important element in the game. This process is based on analysis, identification, acceptance or mitigation of uncertainty in market conditions. While planning for risk management, traders should:
- Analyze and conclude an optimal risk/reward ratio
- Calculate their position size, and percentage of account balance for each trade
- Always have stop losses to protect against the market going against their position
Why do I need risk management while trading?
Risk management helps cut down losses and protect capital. "Live to trade another day". It can also help protect a trader's account from losing a large portion of their capital. Risk occurs anytime an individual steps into the market place. If there are guidelines in place and the trader is disciplined the potential of a loss can be mitigated. Risk management could be a deciding factor on whether you’re a consistently profitable trader or a losing trader.
How do I apply risk management?
Successful traders commonly quote the phrase: "Plan the trade and trade the plan." I suggest never allocating more than 1% of your capital of your trading account into a single trade.
Set stop loss and take profit points through the use of your analysis to combat fear and greed.
Calculate expected exposure and return. Understanding what your max exposure is can help focus on the trade at hand.
Plan the trade. Trade the plan. Commit to the criteria you set for yourself and let the market take care of the rest. There are only so many things that you can control in the market, risk management is one of them.
How do I learn about risk management?
There are so many avenues that will lead you to master risk management. You will discover that risk is subjective. You will not find one "perfect" risk management strategy. It is important to develop a foundation through education and experience. Risk is to not be overlooked because it is the most important element in the game.
Risk management principles are included in ThatFxTrader's Full Volume Training Course. If you'd like to learn more about risk management, click here
Do you offer risk management guidance?
Risk management guidance and tools are provided as part of the signal service. All members receive
- Trade updates (Take Profit & Stop Loss updates)
- Access to the Risk Meter to help you gain insight on the exposure of the trade
- Access to a Risk Calculator to help you to calculate the correct position/lot size.
What is the best way to manage risk?
There are many schools of thought and strategies about managing risk. It is not one size fits all. Here are the top tips to start with:
- Only trade money you can afford to risk
- Always use a Take Profit & Stop Loss
- Know your risk tolerance
- Set your Risk/Reward ratio based on what your analysis says
- Have a fixed risk exposure for each trade
- Keep your risk consistent
- Understand and control your leverage
- Adjust your stop loss as the trade develops
- Cut your losers and let your winners run