Risk management, risk management, risk management, one of the most used phrases in trading, and for a good reason too. This can be based on the number of trades, the trade size and the potential loss of each trade, while it is often built into certain strategies, others do not and so it is important to remember to take it into account. We have come up with a few things that you could do to help you remember to do proper risk management and to ensure that you have done it right.
Have a trading plan:
This one may seem a little obvious, and to be fair it is. Unless you have a set trading plan you should not be trading on a live account. The sad truth is, that a lot of traders still trade on their impulses and their feelings rather than following a plan. Trading on emotion and feelings with no regard for the actual markets or certain risk management techniques like take profits and stop losses is a recipe for disaster, accounts will often blow and the trader will be left frustrated and not understanding what actually went wrong. By trading with a plan, you know exactly what trades you need to make, why you need to make them, and the exact amount of your account that you are willing to risk. Always plan your positions, plan your trades and you will be able to protect your account a lot more successfully.
When people think of risk management, they often think about the losses, but the profits are just as important, in fact, they are equally important to the protection of your account. When a trade is going the right way, itis very tempting to want to continue to ride it upwards, this could involve removing any take profit levels or simply moving them a little higher, however, the dangers of doing this is that the markets can reverse at any moment which could either reduce your overall profit or even take you down into the negatives. Taking profits or at least some of them is vital, by some of them we mean that you can set yourself two take profit levels, at the first one you take the profits of half the trade and then allow the other half to move up, at least this way you have taken some of the profits, you could then move the stop losses to break even to guarantee some profits from the trade.
This goes along with the taking of profits, regular withdrawals are vital, especially when you are just starting out, the phrase of only trading what you can afford to lose is a vital one and goes along with this point nicely. Many people now aim to trade risk-free, this means withdrawing profits each month until you have withdrawn as much as you put in, so you are trading just with profits and your initial investment is protected. Of course, as the account grows, it is important to regularly take some out, you never know when disaster can strike, so getting some out guarantees you those profits even if the account was to suddenly bow (it won’t with proper risk management).
Double-check your trades:
When you have put in your trade, ready to hit go, do you just hit it or do you double-check it? You should be doing the latter, I am sure that at one stage in their career, everyone has put in a trade far bigger or smaller than they intended, even I have put in a trade of 10 lots when I only meant to put in 0.10 lots. It can happen and it is very easy to do, so for hitting buy or sell, double-check the size, the stop loss and the take profits, even check that it is the right pair that you are trading. The consequences of getting it wrong can be huge.
Take a break:
It is important to be able to notice when you are in a bit of a rut when your motivation and concentration levels have dropped, this is the perfect time to take a step back. Taking a break is a fantastic way to help clear your mind, getting what is frustrating you out of your mind will help you to get a fresher look at the markets. When taking that break, be sure to take a complete break, don’t even look at the markets, get away from it completely, this was when you come back none of the thoughts still lingering in your mind, reset from the start of your strategy and take it from there.
There are of course many other things that you can do, however, these are some of the most obvious as it. If you are feeling frustrated, or your confidence levels are down, then take some of these steps, reset your mind, and start again, this will enable you to get your mojo back and will be able to start fresh and hopefully carry on before the rut starts.