Carrying out transactions in the Forex market may seem like an attractive investment however real accomplishment lies in managing your money while you’re at it.
Below are some tips that you can follow to succeed at managing money effectively!
- i) Monitoring your Risk per Trade– This is a measure of the quantity on your trading account that you are willing to forgo per trading that takes place. Certain management experts suggest that the upper limit of this value to be around 2% and a lower at 0.5% if you are a beginner.
You can determine your trading position, for instance, if you hold the value at 2% and your investment amount is $100, you can simply use the formula of money management to see where you stand.
People who are using the aggressive method and trying to earn more by increasing the risk is making a big mistake. Trading is all about probability where you need to find the trade setups based on technical and fundamental analysis. When you find a potential trade setup, make sure you are not risking more than 2% of the account balance to ensure the safety of your account balance.
- ii) Applying stop losses- A stop loss ensures that you are not making the maximum loss of money in a single trade. Albeit changing market positions can cause you to incur loss however by applying tools such as volatility stops, or time stops can help you adjust to market conditions. Some of the rookies in the Mena region often trade with high risk. They don’t know how Forex leverage works. Eventually they end up with big losses and blames the market. If you want to protect your capital, make sure you learn to take the trades with proper stop loss as it can boost your confidence.
iii) Observing the trading risk-reward ratio- While trading in the Forex market, you have to be aware of your trade point where it gets profitable and acquire that amount of risk which you know will result in greater returns. If you adopt inappropriate take-risk levels, this can be damaging to your trading portfolio.
Take profit levels also help to determine the reward-risk ratio; which in other words means the ratio of the profit levels for a certain level of risk that you are undertaking.
R/R is the expression used and a 1:1 ratio implies that the same amount of risks and profits for a single trade is being taken whereas a 3:1 ratio means you are getting 3 times the profit of the risk you are taking.
- iv) Proper use of Leverage-The remarkable leverage level offered by Forex is what attracts so many investors into the market however you need to understand that in reality taking all factors into consideration, there is only 1-1.5% of the movement of currency pairs and bigger leverage may lead to potential losses for the traders.
- v) Do not trade just because you can-A lot of the times, people make huge investments on single trading based upon their emotions and just looking at the current market conditions however you have to know that exercising an already opened trade of maximizing leverage to increase future gains does not always work especially because the market is never stable.
Keeping track of your actions, observing market patterns, and analyzing will help us take better trading decisions.
- vi) Tracking your trade-Maintaining a proper tracking system such as a journal or online-based tracker will help you look at the trends of your trade-in in the Forex market and help you manage your money better. You will learn more effectively from the mistakes and help us excel at trading.
Following the given steps will help you acquire better skills so that you don’t have to suffer from crises if not help you an ace at trading. Experiences from trading will assist in becoming g a master at trading.