If a trader trade on the Forex market he/she is always at a certain amount of risk which is always associated with their trading activities. No matter how good you may be at analyzing the market, you cannot eliminate the risk of losses entirely. Even if you make a winning trade, there is always the chance that you could lose money on the position if the market moves against you.So, you should realize the importance of risk investment managing or risk management. By using proper risk management techniques, you can minimize your losses and protect your trading account.
Here are a few tips on how to manage your risk while trading
Don’t Start a ‘War’ You Aren’t Prepared to Win. There are three parts to trading. Technical ability is where you read charts and make trades. Simply, money management is investing an amount in the trading that means how much money you are going to put in the trade, stop loss, and profit targets. The third part is the price action strategy which I use and teach every day.
Psychological and technical money or investment management is mental are all connected to each other. If one of these things is missing, the others don't do anything.
Never Leave the Castle Unprotected! Even in today's military, there is always a reserve army. If one country tries to attack another country, they will be attacking the other country's riches (gold, silver). So, it makes sense to have an army that can protect your house if someone attacks it. You need to protect your trading account first. This means that you defend it.
If you successfully pass those criteria, you can go and do the other things on your to-do list. A trader shouldn't leave their accounts unprotected when they go for the trading battle. Why “Being a Good Trader” is Not Enough… Excessive risk-taking is a bad thing and can hurt your trading account. One way to avoid this is by not risking too much.
Keep in mind that even the best traders can blow up and lose all of their money or clients' money, so it's important not to get too risky. In his blog "The Naked Dollar" Scott C. Johnston shows how some high-profile hedge-funds ruined 100 million dollars by managers due to their failure of investment capabilities. If you know about that, you must see that it only takes one overly confident trader to convince themselves.Bottom line: don't be that trader! Use sensible risk management techniques to keep your capital safe.