Unlike in the stock trading business, you will experience high volatility in the Forex markets. As foreign currencies are very unstable, you will experience high instability in the price charts. Therefore, you will also experience big potential losses. Loses are inevitable for rookie traders due to their lack of trading knowledge. Moreover, they also dream too much of big profits. From their instinct, they try to manage big profit potential from a big lot. It is one of the main reason behind the end of a trading business. If you invest too much money in the trades, they will make you lose it. Without an effective market analysis, you will execute a trade for a poor market condition. Therefore, you will also lose a good amount of money.
That is why it is very important to secure the trading capital. With a solid plan for risk management, you need to control the lots. The idea is to invest less and target a decent profit margin. When you are set with the credentials, focus on the market analysis. Without a decent trade setup, it is not possible to place a trade. On the other hand, an investment that’s too big will also distract you from trading efficiently. So, develop a solid trading edge for your business.
You need a solid money management
To make your trading business stable, the first thing you need is a secure money management plan. Without sorting out the inputs in the trades, you will lose money. As mentioned earlier, you will need to reduce the lot sizes. To secure the trading money, you need to follow a decent 2% risk per trade strategy. With that investment, you can open trade in your Forex trading account without any margins. It is a good idea to increase the lot size to manage a decent profit. But, you will need a decent plan for the leverage as well. The ratio of it cannot be bigger than 1:20. With a strategy of solid money management, you can always make sure the trades are decent.
Moreover, a simple money management plan will not distract the trading mind. So, start developing your ideas for the trades.
Targets must be decent for everyone
The risk exposure does not only depend on the risk per trade or leverage. The profit targets also influence the risk factor. You may think of big profit margins but without a solid market analysis, you will not execute a profitable trade. At the same time, the trading method has to be suitable for a big profit margin as well. If you set a target of 5R when you are scalping or day trading, your approaches will not return profits. Instead, you will experience big potential losses. So, the trading system should be suitable for your profit target. As mentioned earlier, many rookie traders in Hong Kong expand their lot sizes due to managing big profit margins.
If you want to reduce the risk factors of the trades, you will need a secure profit target. For scalping or day trading 2R profit potential is suitable. And for a 5R profit margin, you need to transfer from short term trading to swing trading or day trading (long term) methods.
Stay away from big trading mistakes
Risk factors also depend on the immature behavior of rookie traders. Many traders get used to overtrading or micromanagement very easily. Therefore, they reduce their chances of making profits from the trades. Those ideas are very keen to ruin your trading account with big losses. You need to avoid them totally and follow a decent trading plan for the executions of the trades. Traders need to maintain a solid trading plan. The trading plan must be prepared by the traders as well. So, take your time and prepare a secure money management plan. Moreover, concentrate on the market analysis to improve trading quality. Always use proper precautions to save your trading money.