mohamed_nour433
New Member
1) Educate Yourself About Forex Risk and Trading
What is the 1 rule in trading? If you are new to trading, you will need to educate yourself as much as possible. In fact, no matter how experienced you are with the Forex market, there is always a new lesson to be learned! Keep reading and educating yourself on everything Forex related.
The good news is that there is a wide range of educational resources out there that can help, including Forex articles, videos and webinars!
Forex 101 - Free Online Trading Course
New traders can improve their Forex risk management techniques by taking our Forex 101 Online Trading Course! Learn how to trade in just 9 lessons, guided by a professional trading expert. Click the banner below to register for FREE!
Free Forex Trading Course with Admiral Markets
2) Use a Stop Loss
Perhaps you've asked yourself, "Do day traders lose money?" Sure. They lose money regularly. The goal, however, is to ensure that your profits are greater than your losses at the end of your trading session. One way to protect yourself against great losses is with a stop loss.
A stop loss is a tool that allows you to protect your trades from unexpected market movements by letting you set a predefined price at which your trade will automatically close. Therefore, if you enter a position in the market in the hope the asset will increase in value, and it actually decreases, when the asset hits your stop loss price, the trade will close to prevent further losses.
It is important to note, however, that stop losses are not a guarantee. There are occasions where the market behaves erratically and presents price gaps. If this happens, the stop loss will not be executed at the predetermined level but will be activated the next time the price reaches this level. This phenomenon is called slippage.
A good rule of thumb is to set your stop loss at a level that means you will lose no more than 2% of your trading balance for any given trade.
Once you have set your stop loss, you should never increase the loss margin. There's no point in having a safety net in place if you aren't going to use it properly.
There are different types of stops in Forex. How you place your stop loss will depend on your personality and experience. Common types of stops include:
Equity stop
Volatility stop
Chart stop (technical analysis)
Margin stop
If you find you are always losing with a stop-loss, analyse your stops and see how many of them were actually useful. It might simply be time to adjust your levels to get better trading results.
Additionally, a protective stop can help you lock in profits before the market turns. For example, once you have opened a position and have a floating profit of $500, you can move your stop loss closer to the current price, so that if it was hit, your trade would close with some of your profit still intact. If the trade keeps going your way, you can continue trailing the stop after the price. One automated way to do this is with trailing stops.
3) Use a Take Profit to Secure Your Profits
A take profit is a very similar tool to a stop loss, however, as the name suggests, it has the opposite purpose. Whilst a stop loss is designed to automatically close trades to prevent further losses, a take profit is designed to automatically close trades once they hit a certain profit level.
By having clear expectations for each trade, not only can you set a profit target, and, therefore, a take profit, but you can also decide what an appropriate level of risk is for the trade. Most traders would aim for at least a 2:1 reward-to-risk ratio, where the expected reward is twice the risk they are willing to take on a trade.
Therefore, if you set your take profit at 40 pips above your entry price, your stop loss would be set 20 pips below the entry price (i.e. half the distance).
In short, think about what levels you are aiming for on the upside, and what level of loss is sensible to withstand on the downside. Doing so will help you to maintain your discipline in the heat of the trade. It will also encourage you to think in terms of risk versus reward.
What is the 1 rule in trading? If you are new to trading, you will need to educate yourself as much as possible. In fact, no matter how experienced you are with the Forex market, there is always a new lesson to be learned! Keep reading and educating yourself on everything Forex related.
The good news is that there is a wide range of educational resources out there that can help, including Forex articles, videos and webinars!
Forex 101 - Free Online Trading Course
New traders can improve their Forex risk management techniques by taking our Forex 101 Online Trading Course! Learn how to trade in just 9 lessons, guided by a professional trading expert. Click the banner below to register for FREE!
Free Forex Trading Course with Admiral Markets
2) Use a Stop Loss
Perhaps you've asked yourself, "Do day traders lose money?" Sure. They lose money regularly. The goal, however, is to ensure that your profits are greater than your losses at the end of your trading session. One way to protect yourself against great losses is with a stop loss.
A stop loss is a tool that allows you to protect your trades from unexpected market movements by letting you set a predefined price at which your trade will automatically close. Therefore, if you enter a position in the market in the hope the asset will increase in value, and it actually decreases, when the asset hits your stop loss price, the trade will close to prevent further losses.
It is important to note, however, that stop losses are not a guarantee. There are occasions where the market behaves erratically and presents price gaps. If this happens, the stop loss will not be executed at the predetermined level but will be activated the next time the price reaches this level. This phenomenon is called slippage.
A good rule of thumb is to set your stop loss at a level that means you will lose no more than 2% of your trading balance for any given trade.
Once you have set your stop loss, you should never increase the loss margin. There's no point in having a safety net in place if you aren't going to use it properly.
There are different types of stops in Forex. How you place your stop loss will depend on your personality and experience. Common types of stops include:
Equity stop
Volatility stop
Chart stop (technical analysis)
Margin stop
If you find you are always losing with a stop-loss, analyse your stops and see how many of them were actually useful. It might simply be time to adjust your levels to get better trading results.
Additionally, a protective stop can help you lock in profits before the market turns. For example, once you have opened a position and have a floating profit of $500, you can move your stop loss closer to the current price, so that if it was hit, your trade would close with some of your profit still intact. If the trade keeps going your way, you can continue trailing the stop after the price. One automated way to do this is with trailing stops.
3) Use a Take Profit to Secure Your Profits
A take profit is a very similar tool to a stop loss, however, as the name suggests, it has the opposite purpose. Whilst a stop loss is designed to automatically close trades to prevent further losses, a take profit is designed to automatically close trades once they hit a certain profit level.
By having clear expectations for each trade, not only can you set a profit target, and, therefore, a take profit, but you can also decide what an appropriate level of risk is for the trade. Most traders would aim for at least a 2:1 reward-to-risk ratio, where the expected reward is twice the risk they are willing to take on a trade.
Therefore, if you set your take profit at 40 pips above your entry price, your stop loss would be set 20 pips below the entry price (i.e. half the distance).
In short, think about what levels you are aiming for on the upside, and what level of loss is sensible to withstand on the downside. Doing so will help you to maintain your discipline in the heat of the trade. It will also encourage you to think in terms of risk versus reward.
