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Trading 101: Risk Management Techniques to Learn

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One of the most important ways to ensure that you can maximize your profits and reduce your potential losses is through excellent risk management.  As the name suggests, risk management refers to the method of managing your risks with Online Forex Trading-Financial Services assistance.

Risk management involves many things that we do to prevent the worst scenario from happening, which is to lose our trading capital or be in debt.  If you are a highly active trader, you need to adopt some form of risk management strategy whenever you execute your trades.

Without enough risk management, even the smartest active trader can slip and lose everything in his trading account.  Here are some of the best risk management techniques every trader should learn.  Check them out!

Use Stop Loss Orders Every Trade

One of the biggest mistakes a rookie trader can commit is not putting a stop loss order on his trades. A stop loss is an order that automatically closes your position the moment your trade reaches a certain pre-determined loss level, which you would set yourself.

Even if it’s one of the very first things traders are reminded about almost constantly, many of them still tend to forget or completely ignore this habit. They don’t understand that a stop loss order does not only act as an insurance for their trades; it also helps them develop great trading discipline.

Don’t Risk More Than 1 Percent on One Trade

This is also called the 1 percent rule, which states that traders should not risk more than 1 percent of their trading capital on one single trade.

Traders should not expect to win each and every trade they have. As a matter of fact, even the most successful traders in the world can make more losing trades than winning ones. What they do to be successful, though, is that they try to limit their losses on the losing trades and try to maximize the profits they get from their winning ones.

The 1 percent rule helps you keep your losses at the minimum when the trade goes against you. It also guarantees that you can trade another day.

Treat it as a Job

For many people, having a job is a means to an end.  We find and do jobs for us to earn some money and provide a living to ourselves and our families.  If we’re good at our job, we can get a higher pay.

That’s also true for trading.  You should think of it as a serious job and you should do your job well.  Don’t be fixated in making too much profit in one go. Rather, try to improve the way you trade. Profits will follow.

Follow the News

You should never disregard daily news stories.

For long term traders, small day to day fluctuations in the markets do not matter much.  But for an active trader like you, you should not make the mistake of ignoring important market updates every day.  Relevant news can be market-moving, and may have huge impacts on different things such as currencies and interest rates.

You don’t have to read every single piece of news every day, though.  All you have to know about is the kind of news that can potentially affect the assets your are trading through Online Trading Platform Software.

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