Learn Forex for Beginners : In the world of forex, there is a big gap between trading and analyzing.
All traders must learn to manage risk if they hope to get a consistent profit.
So, the classic question that often arises is why do some traders consistently make money while others lose?
Difference between trading and analyzing
Many new traders enter markets with different backgrounds, from economics, finance, or maybe politics. But one of the biggest mistakes a trader has is having the hope that ‘the market is often wrong and prices must and will definitely come back again.’
But now, let’s equate our perception that the market is not easy to guess, and no matter what type of analysis you use when there is some new information coming into the market it will make one thing in common that traders and price makers do not want to lose money or loss in transact.
This statement, finally makes the analysis worthless? Of course not, analyzing is only part of being a successful trader. Analysis is a way to get probability with the profit from the trader side.
The example below is the use of incorrect risk management that could potentially destroy the winning percentage with a 70% success.
How to do trade analysis
The first thing, traders need to have a goal that trading in the money market is to make money with a small potential loss.
So based on the facts above, the next logical assumption is that traders must be able to control losses .
So risk management is not only a preference or a trading style but this is an absolute necessity to get long-term benefits.
When a mentor or trader who has high-hour experience explains risk management, it is rare for a trader to be ready to stand up from their seats by going and managing transaction risks. Most people or traders just want to hear about open position strategies, and analytical methods to try to get the biggest profit opportunity. The statement above, is not wrong …
When a trader learns to manage risk, there will be a lot of additional work to do. The first need to do is to observe the proper risk management because trading is not just ‘guessing’ and ‘hoping’.
Profitable trading is applying analysis while risk management must be appropriate so that losses can be reduced and profits can be maximized (read about risk management ).
How does someone start using ‘right’ risk management?
As human beings, we often follow instincts or ‘feelings.’ But in trading, we have to put in place appropriate strategies and stay focused on smaller types of risk and higher rewards.
The way to improve trade with proper risk management is to set a loss limit and profit limit on each trade with a 1: 1 minimum risk reward ratio.
Unfortunately, risk management is not as simple as just setting the stop level and setting limits. If a trader takes a position that is too large relative to the size of their account, even if using a risk ratio of 1: 2 or 1: 3 will make trading opportunities fail.
Next, never place all eggs in one basket and realize that the impact of using large leverage can bring potential losses.
And make sure in your heart that the Holy Grail’s strategy does not exist and the best you can do is look at and use a strategy approach that fits the market conditions.