The Importance of Anticipating the Dangers in Forex Trading
You certainly have often heard that the potential or profit opportunities offered by forex trading are so large. Just an easy example: pay attention to daily price movements through charts / charts. Movement of 1000-2000 pips per day (for quotes / prices with five decimals) is not unusual. Assuming 1 pip is worth $ 1, that means prices move as far as $ 1000- $ 2000 per day. Imagine if you start a buy transaction at the lowest price of a particular day, then the price then rises as far as 1000 pips, that means you will get a profit of $ 1000 that day.
There is potential, there is a risk
Based on the movement on May 15, 2015, USD / CHF currency pair, you can see that the lowest price range (0.91135) until the highest price for the day (0.92540) is 1405 pips. That means equivalent to $ 1405.
On May 16, 2015, there was a movement as far as 1107 pips, which means it’s equivalent to $ 1107. That is proof that the potential in forex trading is indeed great.
If you had made a Buy transaction at a price – say – the range of 0.91524, then the transaction you closed at 0.92631, that means you made a profit of around $ 1107.
However, that is if your estimate is correct. What if the price drops dramatically after you open a Buy position? Of course you will lose.
So it is clear, that the opportunities offered in forex trading are directly proportional to the risks faced. For this reason I am not tired of reminding me of the importance of risk management or risk management .
Anticipate risks before they occur
You certainly often hear the proverb, “Ready umbrella before it rains.” The message is clear, do not wait for the rain first and then busy looking for an umbrella. That is, don’t wait for something “new” to happen when you are busy thinking about the solution. If linked to trading, don’t wait to experience a new loss . You are confused about finding a solution.
Risk is always there. You can experience loss at any time when making a transaction. You must be aware of it before starting the transaction so that you can prepare the appropriate anticipation steps. For that, prepare the right risk management techniques in your trading plan.
If you have prepared risk management techniques, then when a loss occurs you will immediately be able to determine what steps to take. So far, we still recommend cut loss as the most effective and efficient risk management tool. Even so, that does not mean you should not use other tools such as cost averaging or even martingale . It’s just that you have to remember that cost averaging especially martingale has a greater potential risk. You also have to prepare anticipatory steps if the market does not “agree” with the technique.
In essence, prepare for anticipating risks far before you click the buy or sell button.
Don’t play “macho man” with forex market
I forgot when and where exactly I got the term “macho man”. What is clear, the term “macho man” roughly means “pretentious”. This is actually a common disease affecting traders. Maybe even you are unconsciously infected with the disease.
- Do you feel that the transaction that you are going to do will definitely make a profit?
- leave a floating loss position because you are sure the price will reverse in your favor?
- bombard the market with giant lots because you are sure you will get profits quickly?
- increase or double the position when experiencing floating loss ?
If you answer “yes” to one (or even all!) Of the questions above then at that time you were infected with “macho man” disease.
Remember that you cannot determine the direction of market movements. If the market is likened to a desert, you are just like a speck of dust in a desert that has no power whatsoever, especially if you dream of changing the direction of the blowing wind. Oops, bro?
But that is how it is. Above we have repeatedly mentioned the problem of risk in forex trading. Combined with your inability to fight the market, playing “macho man” is clearly an act of suicide.
Losses occur not only because there is a risk in the market, but also because of the behavior of the trader itself. Beware, beware!