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    Thread: How do you apply proper risk management?

    1. #11
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      To apply proper risk management in my everyday trading I do the following:-
      • My each trade don't exceed above 5% of my total capital.
      • I don't enter market when high impact news is due or too much volatile.
      • I always try to make sure that my setup is ready to enter the market so that i don't have to rush the market and over-trade.
      • I give money management first priority because it's what keeps me in the market.
      • Overall, application of proper risk management does not develop in one day. If you can stick to it you will be able to master it.
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      The profitability of any business can be realized only when the risks involved are properly managed. It is the reasons why all risks are expected to be properly evaluated and necessary precautions and measures are made for the purpose of optimization.
      Risks involved can be categorized in to capital and emotions. The management of these risks for a trader requires adequate knowledge and itís application in the areas of technical analysis, fundamental analysis and the psychology of trading.

      Technical Analysis involves the use of different chart patterns (Candlestick formation, Line charts), Price action, Double top and bottom, Triple top and bottom ,Head and Shoulders, Inverse Head and Shoulders, Ascending triangles and so on so forth to mention but few. In addition to the price action and chart patterns there is a need for the understanding and the effective use of different types of indicators (whether on the main chart or the indicator window). The indicators are in different categories viz Trend, Momentum, Volume and custom ones.
      Combination of these ones help the trader ascertain the direction and place the right trade at every point in time
      Fundamental analysis has to do with news and happenings in different countries in question as they have to do with various relevant currencies and pairs .There are various news with different impact (high, medium and low) such as Non farm payroll (NFP), Bank Interest rates, Unemployment change, Housing, Crude oil inventories and so on and so forth. At the every brokersí site there are calendars for all these and various websites who have education and enough information on all these such as ***********, daily**, ************ etc
      Demo trading- a trader needs to develop a personal (workable) strategy which it is advisable to know how well the strategy will stand the test of time by demo trading. In this case a demo account has to be opened and be used till the strategy produces profits consistently. This may take months but it is all worth it
      Trading journal- a very good habit that a trader needs is to have a trading plan at every point in time. The plan should contain the pairs or the currency to be traded, the strategy (and the conditions attached), the expected outcome and at the end the actual outcome. All these should be reviewed (evaluation and reevaluation) to be able to have a better future projection
      Practice on continual basis-Practice definitely leads to improvement in any area of life. It is for this reason that even after live account must have been opened a trader needs to continue working on more strategies which should be well tested before using it on live account and the style for controlling greed that must have been cultivated is expected to be applied
      Without controversy, one of the greatest challenges of trading has to do with greed and along the line a trader wanting to get rich quick end up using unreasonable high lot sizes, overtrading which at the end of the day this may lead to failure and frustrations.
      Technically it is advisable that a trader needs not to use more than five percent of the available capital with stop loss of 50 pips. This implies that a trader will need to lose up to 40 trades before his or capital may totally wiped out
      Balancing up the aforementioned set of knowledge and itís application will translate to proper and effective risk management of capital and emotions


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      My trading style and risk management is somewhat different because i just love to trade with high lotsize and have a small pips protection but i am having always a plan in mind and that is at what position i will get out from the market in the odd situation ,its not that i will wait till the margin call but i feel max traders should trade with low risk with 2-4% risk per trade order ,its the safest of all and specially the newbies should adopt the strategy because from first without experience and knowledge ,if we just jump into the market with high lotsize ,your trading account can be blown in a short span of time .

      We have to keep in mind that the risk should be taken in such a way where we can make profit as well as proper protection of the trading account is being maintained as with high risk its a shortlived thing .


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      How do you apply proper risk management?
      Risk management is the key to survive in this volatile market. Basically you can't prosper in Forex market without if you don't have an effective risk management. Using stop loss and take profit is the primary elements of risk management. It will help you to ensure calculated profit or well judged loss. You must apply this stop loss and take profit in your every trade. Using calculated lot size is also important for reducing risk. Without using small lot size you can't survive in the market for a long time. It's an art. You have to grave it correctly if you wanna become a good trader. Using big lots in small account is just like suicide. Copying other trader's strategy should also been avoided. In every step you should have a good trading plan. You should know that what are you going to do next. Remember Forex success depends on effective risk management.
      Who Is Your Creator And What Is His Intention? Find It Before It Becomes Too Late. If You Search You Will Realize That Allah Is One. May Allah Bless You.

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