Risk Management in Forex
Learn how to do effective Forex Risk Management so you don’t blow your Forex account. This is what professional traders do. Do the same!
On many occasions we see a lot of Forex Traders planning their trades using proper technical analysis or fundamental analysis, and yet they fail on another essential point, which is risk management.
Managing risk correctly does not mean that in all cases the leverage you put on a position is minimal, without diversifying the position by using different pairs. We observe how that old belief that when the EUR/USD pair was going up, the same thing would happen to the GBP/USD pair, and in a contrary way, at the same time, the USD/CHF and USD/JPY pairs, would suffer similar movements.
How to Create a Risk Management Strategy?
Today, the different economic situations experienced by the central economies mean that each pair has a “life of its own”, and just as we have seen that the USD/JPY pair has almost misbehaved in recent weeks, the USD/CAD, which generally moves in the same direction and at the same time, is at multi-decade lows, in favor of rising oil prices.
Far from making the market unpredictable, these totally different movements of the so-called major pairs, give excellent opportunities, not only in the pairs that include the Dollar, but also in the so-called cross pairs, which include the Yen, the Swiss Franc, the Canadian Dollar, etc.
The analysis proposal in this opportunity, consists in not excessively increasing the risk of a trade, but rather placing the same amount of lots that is usually placed but divided in several pairs, which, if the Trader is conscious that at least 20% of his trades will be of losses, by the infallible nature of any forex strategy chosen, at least he will be able to obtain profits in the majority of his positions, compensating in some cases possible losses, and obtaining benefits by the big difference of profitable positions in relation to the unprofitable ones.
By this we are not saying that it is convenient to trade 15 currency pairs at the same time, nor much less. But rather, that it is appropriate to extend the analysis that a trader usually performs on 2 or 3 pairs to at least 8 pairs, and to trade with awareness when the strategy shows reasons for possible profits.
This way, although the total risk assumed in the amount of simultaneous positions is similar, you can probably exit several trades quickly, and you can work without the worry of being close to your risk margin, without putting your losses at risk.
Although we suggest not to invest when news about the macroeconomic state is released, due to the unpredictable state that the market can take at those times, on occasions like these it is necessary to be careful. The best forex strategy is to analyze the situation well and wait until the trend normalizes, and you can analyze the market again without heavy losses.