One of the most important rules of forex trading is to learn to keep your losses small. With small losses, you can outlast the times when the market moves against you so that you are well-positioned when the trend turns around again. The only rule to make your losses minimum is to set your stop loss before trading in the forex market. With minimum losses, you will have the option to make the most of your trading in the forex market.
In this article, we have compiled various strategies that will help you to manage losses in forex trading –
#1. Trade With Money You Don’t Need
The first rule in forex trading or any other trading is to only risk the money you can’t afford to lose. Many traders, especially beginners, skip this rule as they think that their strategy won’t fail.
You can lose the trading money that you have invested but losing your savings will add extra pressure and emotional stress on your trading.
#2. Use Stop-loss and Limit Orders
A stop-loss order is an order placed with a broker to buy or sell a specific stock once the stock reaches a certain price.
A limit order is an order to buy or sell a stock at a specific price or better. A buy limit order can only be executed at the limit price or lower, and a sell limit order can only be executed at the limit price or higher
It is important to set stop loss and limit orders to get out of the trade once the market moves against your wishes. The common reasons why traders are advised to use stop loss and limit orders are –
#3. Assess Your Risk Tolerance
This means that you should know how much money you are willing to lose or risk on each trade. This will help you to decide how comfortable you are with the possibility of losing money in exchange for losing profits.
#4. Control Your Risk Per Trade
Traders also need to consider the risk per trade as a percentage of your trading capital. Traders who are not willing to risk more should set it at a conservative level. This is more important if you are new to trading and are likely to make more mistakes.
We advise you to risk only a small percentage of your trading capital per trade. A good start is to not risk more than 1% of your available capital per trade.
These pointers are just a summary of how to manage your losses in forex trading. Before you use your live forex account you can try a testing account or demo account to practice trading in the live market. This will help you to gain more insights on how to make profits in the forex market and the importance of research before trading.
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