How to manage risk while trading Forex?

In this article, you will learn firstly what risk management is and why it matters, secondly, what position size is, and finally how to calculate your position size so that you never blow up another trading account, so let’s move on and delve deeper into the topic.

What is risk management in Forex, and why is it important?

So this topic that I’m talking about sharing with you is very important, so pay close attention first of all to risk management, if you ask me, risk management is the ability of a trader to properly face a series of losses and not blow up your trading account.

For example, even if you suffer a string of 10 losses in a row, your trading account should remain largely intact, yes you have a few losses along the way, but that proper account should still have most of the money intact, so this is risk management. It is everything, so it is important because you can have a winning trading strategy, but without proper risk management, you will still end up a losing trader.

So let me share an example with you so you know what I mean; let’s say, for example, there are two traders, John and Sally, and they both have a $1,000 trading account to start with their trading strategy, and they have a win rate of 50, meaning they win half the time and a risk ratio of two So let me explain what the risk to reward ratio is.

Let’s say, for example, that you risk $100 on a trade, well, that’s the amount of money you’re willing to lose on a particular trade, and the outcome for you is favorable instead of losing a hundred dollars in a known direct market and you’ve made a profit of $200. In other words, the right This 200 is double the amount you were initially willing to risk, so this is what we call a one to two risk-reward ratio and this means that your reward right is twice the initial risk.

Using this simple example, be able to see the importance of managing risk properly in that, in the case of both traders, they are trading with a winning strategy, but because of risk management, one of them loses his entire account, and the other is, you know, you are making some money directly from trading in Markets.

How do I make sure that every time I trade correctly and do not lose?

This is where the next topic comes into position sizing, what is position sizing, so position sizing is simply like trading the right number of units so that even if the trade ends up being a losing trade, it is just a small part of the account. your trading,

Let me repeat determining the correct position size is knowing how many units you should be trading correctly so that if this trade goes against you you will only lose a small portion of your trading account as a general guideline I usually advocate the right to not lose more than one percent. from your trading account on every trade.

For example, let’s say your account is like a ten thousand dollar trading account, then one percent of ten thousand equals one hundred dollars, this means that every trade you make should not lose more than one hundred dollars in each trade, now that brings us to the right question. How do we know to calculate it this way you know you won’t lose more than $100 on each trade, so to do this you need to know a few things.

How to manage risk by determining position size with your Forex trades?

For now, I just want you to know how to use this very useful calculator, just click on Google, there are many free calculators available and then just choose whatever you know you are comfortable with.

Let’s do a quick summary of the above. The first position size is a tool for managing your risks and using a calculator to determine the position size correctly to make your life easier. Most brokers usually have a built-in calculator function. If it is not correct, all you have to do is go to any free site via Google, and you can use a calculator to help you calculate the number of units to trade so that you know that even if the trade is a losing trade, you will only lose a small portion of your account.

This is kind of like the secret formula Position size equals the amount to risk, right the dollar amount you’re willing to risk divided by the stop loss multiplied by the value per pip, so the amount to risk I usually recommend a one percent risk on each trade that traders will go By two or three percent and that’s pretty much what you know even an individual trader and then you divide it by your stop loss multiplied by your value.