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How to control the risks in trading?


Risk control is one of the dominant aspects to consider when trading. Of course, if you choose to trade with Exness MT4, the risks are kept to a minimum. Either way, let’s take a look at the key steps you can take to minimize risk and calculate its probability when you start trading.

What is risk in trading and why you would control it every second

A the trading risk (aka risk in trading) is presented by certain events in the forex market, and then negatively affects the trader.

There may be changes in the exchange which will ultimately lead to a loss of money.

There are risk management strategies in the foreign exchange market.

The risk involved in forex trading can be calculated using the following formulas. There are certain formulas and rules for determining risks, for example:

Risk per transaction = Purchase cost – Stop

And here is the formula for calculating the risk for all trading capital, expressed as a percentage:

Risk = Expected losses in trade / Equity x 100

This formula will help you comply with the basic rule of risk management, which allows you to do not risk more than 2% of your trading capital (or wallet) per transaction.

Risk management is primarily a process of preliminary analysis of all transactions for possible risks and potential benefits.

Before entering into a stock exchange transaction (opening a position), the fundamental condition is to determine the resulting risk.

Risk management, or simply risk management, largely determines the likelihood of a trader’s trading success in general, as it allows a competent approach to open and maintain positions under risk conditions.

Often, it is precisely the optimization of a position based on the level of risk acceptable to a trader that is the main criterion for successful trading.

Frequently beginners, having no idea of ​​risk management, overestimate the risks and lose their deposit, which often ends in frustration in trading.

Moreover, without working with risk management, it is extremely difficult to create a successful trading strategy.

Watch the news and stay up to date

Being guided by fundamental analysis or simply watching the news and keeping abreast of the news acts as a “fulcrum”:

  • Following the publication of macroeconomic indicators
  • Statements from the largest international companies and
  • National financial organizations,

a trader is able to predict a decrease or an increase in the rate of a particular currency. This is how all forex professionals work.

But even if a trader is not going to become a professional, he may well define himself several sources of information that he will use to keep up to date.

The formula for success in the forex market is quite simple. To be profitable, it is necessary

  • Correctly interpret the information received
  • draw the right conclusions and
  • Respond correctly by opening certain offers.

There are several basic information feeds that a trader can use. The most convenient help is the financial news feed, which is equipped with all the major online trading platforms.

As a rule, on this tape, specialists of the brokerage company or their partners, economic news agencies, display all important news for the Forex market in real time.

Stick to plan within budget

Sticking to the budget you have set is actually one of the basic elements of controlling your risk in the forex market.

There are several universal tips for applying risk management in trading that can help improve the trading efficiency of a trader who uses them correctly:

  • Before starting to trade, it is necessary to develop a trading plan that describes in detail the behavior of the trader during the trading day, which helps to partially neutralize the emotional component of trading.
  • Use only strong signals in trading. You shouldn’t try to trade from a reversal with every random correction.
  • You must limit your losses in each trade and plan the expected profit using stop and take profit orders.
  • Don’t overexpose losing positions. Stop orders not only help close a losing trade on time, they are also a kind of indicator of forecast accuracy. If the forecast has obviously not been confirmed, one cannot expect a price drop over time, otherwise one may end up in the opposite trend position and lose the entire deposit.
  • Don’t try to trade aggressively, especially if you have no experience. It is no coincidence that professional traders choose the risk threshold for a trade up to 2% of the deposit – it is best to stick with this until you have gained some trading experience.

Each of the tips listed above applies to how you allocate your budget in the trading process. Thus, planning your budget is essential.

Take profit-stop loss points

A successful trading system consists of two parts:

  • The first is loss limitation, and
  • The second is taking timely profits.

Sometimes traders’ strategies assume a strict ratio of the duration of positions such as stop and take profit, for example, 1 to 3. Thus, a stop of 10 points will have a take profit of 30.

The ratio can be any, but you should not set profit taking that is too long for no good reason. Often times, overestimating the price factors leads to the trader not seeing a solid profit and the reversal occurs before reaching a long hold.

At the same time, it should be remembered that in this case, the take profit must necessarily exceed the stop, since a rare strategy allows a trader to trade without losses, and short stops suggest that, for example, two losing trades can be compensated. by a profitable.

However, in many strategies the exit point is determined in a different way. Signals trading is one example.

According to this strategy, a trader enters a position with a signal and expects a return signal to come out. In such strategies, the ratio between possible profits and losses is quite large, as the price often exceeds a large number of points before reaching the reverse signal.

However, this position has a significant drawback: sometimes the return signal is not received at all.

Another strategy is to place profits near resistance levels, where the probability of a reversal is very high. Most often, this option is preferred by experienced traders who can correctly determine levels.

Exnessgroup wishes you successful trading in 2022!