Risk Management in Forex Trading

Risk management is one of the major keys a trader needs to master in order to have a long and successful forex trading career. In forex trading, Risk Management, Mindset and Trading edge works like a puzzle– fail at one, and you will fail at everything. If you risk 10 % per trade, or you do not use the Stop-Loss on each and every trade you take, even a positive mindset or good trading edge can’t help you. You may get lucky once, or a few times, but disaster is not far away and it’s matter of the time. If that happens you must start all over again, if you have a will! Here are 3 signs you are risking too much… In order to learn to trade forex (or any other financial market) you have to invest time and energy to become a successful trader.

Always remember you must plan your forex trading for the next 5-10 years, if you are serious about your trading and your goal is to make a full-time living from the forex trading. By planning and being serious I am not saying you must be “dead-serious” and not smile during the day, but what I am saying is – you must respect the market and respect the risk management. If you will not do this, market will make sure to humble you. Every trader is the student of the market no matter how good trader you are. Learning to trade is an investment in yourself. If you want to learn to trade forex, stock, futures find yourself a forex mentor if you want to fastrack your trading progress and save time.

Fact is, the leverage and too big size (risk) kills most of the forex traders. Most traders are in trading world just to make an easy and quick cash. That’s wrong approach and not right mindset to have. They can make some money, but they will be also quickly out of the business. Especially by assuming most of retail traders are gamblers, and they do not have any strict rules around their trading, trading plan & journal, routine … you name it!

Question is…

…are you one of those forex »traders«?

3 Signs you are Risking Too Much in Terms of Money and Percentages

Here are signs you may be risking too much on your forex trade, position:

1.) You Can’t Sleep

Did you open a trade during the London Session time, but once you are in the bed you can’t fall in the sleep? Or you wake up in the middle of the night thinking “Is my position going well”? Everyone was there. I was there. That may be the sign you are risking too much. Try to lower your position size on your next trade or two and see how you handle it. Feeling like 2% risk per trade is too much for you? Try to risk 1.75% or 1.50% and see how risking that much affects your trading mindset. Learn to trade forex by focusing on yourself and our trading.

If your trading buddy is fine risking 2.5% per trade position, that does not mean you will be fine with it too! As one of the best traders Jesse Livermore said: “If you can’t sleep at night because of your stock market position, then you have gone too far. If this is the case, then sell your position down to the sleeping level.”

Every trader has his own mental trading capital, and risk tolerance. What is good for one, may be not good for you. Only experiences will build your forex trading skin, style and personality. You can’t know, if you do not try.

2.) Checking Too Much

Did you enter in good-looking long trade with supported technical factors, and instead of letting the market, and your edge do the rest, you constantly worry about your forex position? Things like you can’t close the charts and go away, or checking the currency rate on your phone while you are outside… those are another signs you may be risking too much. Once you have a proven forex trading edge, and you execute your trade as per rules of your trading plan, you should not worry about one single trade. One trade is just one trade in the series of your trades based on your trading edge.

3.) Exiting Too Early

Let’s say you spot nice long swing trading opportunity on EUR/USD 4-hourly time frame and as per your forex trading plan, you put your Stop Loss at 50 pips, you set your Profit Target at 100 pips and that is it. You go away on short walk around your city, and instead of enjoying the time outside, you constantly think about your open position, and you feel like whole trading year depends on that one single trade.

You come back in front of the charts, and your trading position is running at -10 pips, and what you do next, you simply close your trade out of no good reason. Your only good reason was you do not want the price hit your Stop Loss level. In other words- you made the decision based on your fear.

You are kind of a happy, because you think you cut your loss quick, and saved extra 40 pips… But few hours later you came back, you checked the currency pair you had the trade on, and you see price continued its way up in the major uptrend direction, and you would have been now in 60 pips profit. That’s what a lot of traders do – instead of letting the probabilities of their trading edge do the rest (and let the market do the work by hitting their Stop or Profit Target), they make their trading mistakes out of fear. If you start making this kind of trading mistakes, you may be risking too much too!  If you have a passion for your trading, learn to trade forex and try to become the best trader possible. Invest some time in your trading plan, trading journal, and learn to trade forex with the right trading skills and habits.