If you have any questions or comments, please feel free to contact me
at the following email address:

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I’ll respond back typically within 24 hours.

Thanks!

Here at Forex Risk our aim is to discuss some of those different factors, and to help you to make an informed decision about your trading strategies.

Please check out the information that we have available, such as this article about Forex Risk and trade safely!

- The Forex Risk Team

The entire series is over an hour of forex video training. So go and get a drink and then come back and settle in for some good forex learning!

Here is Part 2 on how to improve the timing of your Forex trades, and hence lower your forex risk into the bargain.

Here is Part 3 in the series.

Here is the final part 4.

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You need to make a concerted effort to minimise your risk when you trade, because ultimately that is the factor that is most likely to bring you long term profits. One of the key factors in establishing a method that suits both your personality and your forex trading strategy is to start out by paper trading different stop loss points and see how they would have worked out, and how your emotions were when you were forced by the system to either take a profit or cut your losses.  This can be quite a telling exercise to go through, because as well as giving you a good idea about your internal psychology, it will also tell you a lot about how you react under pressure.

Here is the forex system I use >>

Forex Risk Management Psychology

Now, of course this is far from perfect, because a  forex risk management strategy that is tested through paper trading only can never have the emotional impact of either making or losing real money. But nevertheless, it is a worthwhile exercise, because you will learn a lot about yourself in the process.

Once you have gone through this then you will really understand how interesting it is to reflect on how different people react to it. Some people will feel a bigger psychological tug when they have to sell winning trades, because their profit taking point has been reached. Whilst others will feel a greater sense of dread at closing out loss making trades. This is useful bio-feedback to create your own flavor of forex risk management plan, because it shows you your motivation strategies in a very clear way. Though your first priority should always be to use a winning forex system, so that your money management worries are reduced to a minimum.

This is heavily discussed in a psychological discipline called Neuro-Linguistic Programming (or NLP for short) which is a science that relates to human motivation. And is essentially showing whether you are a ‘toward motivated’ trader ie you get more of a kick out of making profits. Or an ‘away from’ trader, where you get more motivated by avoiding losses.   All of us are a mixture of the two, but you can usually tell when someone is more inclined to one way then the other. And this will tell you how big a risk taker they might be, and give clues as to how you should adapt a risk management strategy to suit their personality.

Human motivation is extremely relevant when you are look at trading risk, because the type of money motivational strategy that you have internally, will very much affect how you choose to trade. To learn your own style through paper trading is a fantastic use of your time, because you will then have a much clearer idea about whether you are taking action because you genuinely believe there is a good chance of making money. Or whether there is an element of not wishing to be proved wrong, and hence persevering with a strategy, when wiser heads may have concluded it better to cut and run considerably earlier.

Once you are trading for real this information will prove invaluable to you. Especially when you hear the little voice In your head telling you that you should ditch the system or the forex risk strategy that you have already pre-defined, because you have a ‘sure thing’.  Whenever you hear that in your mind then alarm bells should be ringing in your head, because you will know that it’s time to a break, and stick doggedly to the plan, even if it may end up costing you money. Because psychologically you are inclined to basically gamble.  In reality it will most likely save your bank balance getting a hit on more than one occasion if you have the mental discipline and mental clarity to stick to your guns.

Forex Risk Management… Final Thoughts

Forex risk management is not a sexy subject. But it is probably the key difference between very successful traders, and those who go up and down constantly in their battle to make money out of the foreign exchange markets.

If you can get it handled then you will already be well ahead of most people. The next step is to then pick a trading system that can make you consistent profits if you stick with it and keep a careful eye on your bankroll.

To put forex money management to best use you need to be making money consistently, and for that you need a great forex trading system to trade.

Here is the forex system I use >>

Forex risk management cannot simply be left to chance. In the same way that you may well look at historical forex data to plan out what to trade and when. You equally need to have strategies in place to tell you when to let the profits in a trade run, and when to cut them short. And you need to have these clearly established ahead of time, so that in the heat of the trading battle you don’t fall prey to that little voice in your head that says that this situation is somehow different from previous occasions, and so you should just “Wing It” or “Go With Your Instinct”. More often then not that thought will end up seeing you poorer then when you started out, so don’t fall prey to it.

Instead use a forex system that works and keep the following forex risk strategies in mind when you trade.

Here is the forex system that I use >>

Here are Five Forex Risk Management Strategies to consider:

1/ Establish Limits On The Amount You Trade

This is a key aspect to regaining control in your trading. You can make winning trades 90% of the time. But still end up losing all your money if you start to think you are invincible and keep on doubling up every time.  You should establish clear limits on how much of your total bankroll you are prepared to risk on any one trade.  A good rule of thumb might be to not invest more than 1% in any single trade. So that whilst you are unlikely to make a killing very quickly, you are also limiting your losses. And should be able to sleep better at night

2/ Make Sure You Have Clearly Defined Stop Loss Points And Take Your Profits

Again this is primarily about limiting trading blindness. It is no good imagining that everything will turn out ok. You have to know it for sure. And for that to be the case you have to have clear established stop points for both profits and losses in your forex risk management plan.

3/ Avoid Trading Similar Instruments That Tend To Track Each Other

For example, the GBP and the US Dollar tend to move together, as do the Euro and the US Dollar. So it is best not to be trade both of them simultaneously. All you are doing in such a situation is to ramp up risk. You will make more money on trades that go your way, but on the flip side you will make greater losses if things turn out badly, as both will fall together. In essence you will have become a gambler, which should not be your aim with trading forex. Making consistent profits should be. And for that you need not only a great forex system, but to be good at handling the money once you have made it.

4/ Avoid Chasing Your Losses

This is a key forex risk management principal. If you constantly chase a trade in the hope that it will turn your way, then you are acting a little like someone betting on a roulette wheel who keeps trying to double up on black, when the wheel keeps churning out red numbers, under the thought that eventually his luck must turn. This is not a good way to handle a financial portfolio, and you should be wary of becoming overly emotional about trading. The more emotionally dispassionate you can remain the better it will work for you.

5/ Make Your Portfolio More Diverse

Always try to add in additional diversity into your portfolio through stock, options , bonds etc. In this way you will be more likely to have a more stable fund of money, as some will make losses, but others will profit, and they will balance each other out over time.

Forex Risk… Final Thoughts

One great way that you can add more diversity into your trading and reduce your forex risk is to try out proven forex trading systems. As you can then get to piggyback on other traders experiences, often for relatively small amounts of money.

Here is the forex system that I use >>

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