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Forex Risk Management Strategies: How and When to Walk Away



Forex traders should keep an eye out for quite a few things if they want to limit the risks associated with active trading. We’ve all seen it; many traders will follow fads instead of paying attention to the proper management of their money, and as a result, they will lose money unnecessarily. Two of the most important reasons why forex traders lose money are that stop losses that aren’t used properly, and unnecessarily large trading positions are held far too long. Improperly used stop losses are especially troublesome for novice traders, as they don’t have the ability or knowledge to plan long-term strategies around them.

If you’re looking to become a better, more knowledgeable trader, then read on to learn about risk management and the risk management trading strategies every forex trader should know.

Stand by Stop Losses

Entering a trade with only calculated profits in mind can be disastrous for your wallet, as you must also calculate a protective stop loss. You should determine a realistic risk-to-reward ratio, which will help limit drawdowns. as well as assist you in selecting essential stop losses and target limits for your trades.

A stop loss—or trailing stop loss—limits your losses by setting the amount order at a defined number of pips away from your entry point, or otherwise to a certain percentage below the price of purchase. This means that your total loss will be the amount of its setting, and no more. It can be difficult to accept a hit, but a stop loss essentially means rolling with the punches; it makes up a key factor in any risk management trading strategy.

Take Profit to Protect Your Portfolio

When you pursue profit, it’s important to leave your emotions at the door. Predetermined exit strategies are also important, so you don’t let emotion cloud your judgment and decision-making skills; impulse is your enemy in trading. Logic and discipline will always win the day, as the winners run and increase your profits. Small profits may be tempting, but you must be patient in order to maximise profits.

Avoid manually exiting trades the moment you see things moving against you, as this can often do more harm than good; a manual exit is a risky move in its own right. The market moves in a zigzag pattern, which implies that as it moves against you, it’s already planning to move in your favor once more. So be patient, make a plan for your trades, and commit to riding out the market. With take profit orders in effect, you can effectively ride market waves, cashing in when required and protecting your portfolio in the process.

Be Smart About Position Size

Size matters, plain and simple, in forex trading. Always remember that increasing your lot size also increases your risk. If you increase your risk by too much too soon, there’s a chance your account will blow out—especially if you’re using large-scale leverage. Position size should be determined after great care and thought. Take time to prepare and calculate, which will help you determine the amount of time recovery will take if you decide to take a big risk. Remember, when it comes to forex trading, increasing position and volume size isn’t the way to dig yourself out of a hole.

Accept that Losing Trades Will Happen

In spite of what other forex traders may tell you, investing is more of a race than a sprint. Prepare yourself for losing streaks, both mentally and financially, as constantly losing can be a drain in a number of ways. Ten, 20, or even 30 losing trades in a row is feasible if you have placed hundreds of trades over a few years. Discouragement, unrealistic expectations, and other factors can leave you vulnerable to impulse trades. Accepting that losses are part and parcel of trading can mentally and emotionally prepare you for the risks you’re likely to face during every trading session.

Stay Alert—Avoid Mistakes

Investing and trading signs you up to be a lifelong student, particularly of financial and economic matters. You must constantly seek out knowledge of the market, remaining educated on what’s happening with your money. In order to be a successful long-term forex trader, you must realize that the biggest obstacles you face will be your own emotions. Over the years, we’ve seen many traders stop learning and effectively let down their guards. This is exactly where the issues start; trading risks automatically increase through a lack of attention or vigilance. When you’re trading you must stay alert, being aware of your trading activity and the effect on your portfolio of the associated risk.


Realizing that forex traders are survivors first and profitable second is your first step to becoming a successful trader. With the right techniques to manage your money and negate risk, any trading system can become positive and profitable. In fact, risk management is highly important in managing your trading efforts, because if you risk too much on a single trade, then you lose the experience of the full benefit of your system over the long run. Integrate the risk management strategies mentioned above and—given time—you’ll likely become more successful in your forex trading efforts.

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The information provided herein is for general informational and educational purposes only. It is not intended and should not be construed to constitute advice. If such information is acted upon by you then this should be solely at your discretion and Valutrades will not be held accountable in any way.

This post was written by Graeme Watkins

CEO Valutrades Limited, Graeme Watkins is an FX and CFD market veteran with more than 10 years experience. Key roles include management, senior systems and controls, sales, project management and operations. Graeme has help significant roles for both brokerages and technology platforms.