Many traders would have you believe that a certain trade or tool is the best way to manage your risk in the forex market. But the truth is, the best risk management strategy, and to many the hardest, is self-discipline.
Specifically, as a trader, you must never risk more than 1% of your total capital on a single trade.
The main reason for this rule is to minimize capital losses in case of harsh market conditions or when you are having an off day. By adhering to this rule, you would need to lose 100 trades in a row to wipe out your account. You could even implement stop loss orders to further minimize such losses.
Thus, if you risk 1%, you should set your profit goal on each successful trade to 1.5 – 2% or more. When making several trades a day, gaining a few percentage points each day is entirely possible, even if you only win half of your trades.
Trading is about preserving your capital as much as it is gaining profit. By controlling your losses, you can endure tough market conditions and be ready for profitable opportunities once they appear.
Specifically, as a trader, you must never risk more than 1% of your total capital on a single trade.
The main reason for this rule is to minimize capital losses in case of harsh market conditions or when you are having an off day. By adhering to this rule, you would need to lose 100 trades in a row to wipe out your account. You could even implement stop loss orders to further minimize such losses.
Thus, if you risk 1%, you should set your profit goal on each successful trade to 1.5 – 2% or more. When making several trades a day, gaining a few percentage points each day is entirely possible, even if you only win half of your trades.
Trading is about preserving your capital as much as it is gaining profit. By controlling your losses, you can endure tough market conditions and be ready for profitable opportunities once they appear.