The concept of generating an amount amidst a prediction that did not expire in-the-money, and that of not losing more than what you have invested, is just as attractive to the novice trader and to seasoned ones. And like any other form of financial instrument, one key consideration that must be emphasized is risk management. Traders might lose all their investment due to a momentary lapse of judgment, one careless move or just a simple case of greediness.
There are many strategies to choose from, there are several that are worth looking into. While the perfect techniques have not been found yet, risk management is best executed in simple ways. It need not be too complicated. Here are methods that minimize financial exposure during a trade.
Try Out a Demo Account
In recent years, different brokers are now offering demo account creation for online users. Some brokers however only offer them for a limited time. For example. an AvaTrade practice account is only valid for 21 days. Make use of this free practice accounts as it is a good venue to test your skills. You can also get the chance to try out the platform and assess a site’s customer service. And you can observe the way you react to challenging situations when they present themselves. In here, you can make mistakes and maneuver your way to correct them without real money involved.
Check Historical Data
Historical data are figures that paint a vivid picture of how prices behave in the past. Its behavior represents how it is likely to fluctuate given certain conditions, with considerations given to factors that are currently exerting an influence on the present market situation. This is especially important in predicting the direction of price movements.
Stay Away from Successive Trades
When your agenda for the day is to recoup losses for the other day by trading with large amounts in successive tries, then you may be headed for trouble. As part of risk management, this gets often overlooked. A succession of trades that did not go as planned can siphon your investment funds. Limit your trades to small amounts. Set a limit for yourself and set a limit on your investment amount as well. This will work well in the long run as the total of your profits increases; the risks gradually lessen as you only put small amounts. Remember to invest only the amount that you are willing to lose, without tapping in to your profit pool.
Patience and Protecting Your Investment
When you’re on a roll and you seem to be on a winning streak, expect a break from it all. It would be appreciated if it continues; however, you must be realistic and think about what would happen if it does stop all of a sudden. The first thing you need to do is to protect your investment. If you are still trying to think about recouping your loss, stop. Rest for a day and think about getting back to it the next day. Have the patience to wait for market conditions to get better. The market is known to fluctuate and you must know that depending on various factors, things could turn around for the better any day now. It will not be a wise decision to lose all your profit in one day.
Risk and Reward
Risk is defined as the probability that an action may result to an undesirable outcome or a loss. Management is defined as establishing strategies designed to address challenges and direct one’s performance to optimum levels, to minimize losses. However negative notion that risks is attributed to, the beauty of it is that there is a choice to influence an outcome that may not be desirable. And this is where risk management comes in.
The absence of risks is non-existent in every trade. It is always there. But this should not hinder you from engaging in any trading activity. All you have to do is get the right balance between the risk and getting that reward afterwards. The likelihood of successful returns is higher if you will take more risks. There would be fewer rewards if you will not take any at all. So, go for an educated guess and have the conviction that you have a winning trade.
Over exposure to the same market movements is not advisable so try for a mix trade. Diversify your portfolio and you increase your chances for higher returns as well.
Anticipation and Focus Pays Off
It’s easy to get carried away when you set your sights ahead on the end results while being mindless of the process to get there. It is important to stay focused and start slow, rather than make impulsive guesses on the price speculation. It will not do you any good, especially that volatility is part of a fluctuating economy. A well-thought of strategy pays off in the end with better returns.