SIGNIFICANT LEVELS OF RISK MANAGEMENT

  There are two major significant levels of risk management which must be practiced and managed with each trade a trader implements.

·        Capital Protection

·        Profit Protection

Capital Protection

Capital protection is ensuring of the security of trading capital via strategies tested, proven and guaranteed to produce the expected outcome. The idea of capital protection is a sound ethical trading practice that underlies the concept of money management.

Capital protection seeks to imbibe in trader the defensive art in forex trading enterprise. Generating returns is important but not the bases of capital protection, though we seek to make as much as possible profits for each trade.

The trading phrase-”cutting your losses and let…ride” is the bedrock or forex trading profit maximization tactic. Cutting loss before trading and not as soon as the trade goes against a trader is the focal point of capital protection.

Position trading from this standpoint is the amount of risk a trader can absorb with the trading account. By sizing position a forex trader can come up with whatever percentage risk he/she is comfortable with based on the appetite for risk he/she can accommodate.it can be 0.5%, 0.1%, 5%, 10% etc.

From the assumed percentage risk, a trader is expected to figure out half the percentage as the stop loss level to take care of loss. For instance, If you decided to risk 5% per trade, make your stop loss 2.5% of 5% (the risked percentage per trade).

Illustration:

$1000 account size, at 5% risk per trade is to be traded at 2.5% of risk per trade stop loss level.

The parameters to work with are as follows:

·        $1000 Account Size

·        $50 Risk per trade

·        Stop loss at $1.25

In other words the stop loss amount will determine the lot size to trade.

 

Profit Protection

Profit protection seeks to maximize the full potential of the ride in favour of a trader and also minimizes the negative effect of a reversal on profit.

The saying that the trend is your friend is to be sustained as long as is in your favour but immediately it shifts ground you have to rake in your profit as soon as possible.

It is noteworthy to mention that a trader will do better if there is proper monitoring of the trade. To protect your profit trail stop or change profit taking levels manually.


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