Protecting your trading capital should be your priority. Rookie traders in Singapore always think about the profit factors and don’t focus on the risk management policy. They are always busy developing the perfect trading method so that they can make a big profit without losing too much money. Before you consider trading as your fulltime profession, make sure you are trading the market with managed risk. Though you can follow a different approach and protect your trading capital it’s really hard to follow all those rules. To make things easier, we are going to give you five amazing risk management tips that can easily protect your trading capital.
Risk per trade
You need to define the risk per trade in a very professional way. Taking more than a 5% risk in any trade is more like gambling. You might secure a 20% gain but do you think this will help you to become a skilled trader. You will slowly develop the habit of gambling and eventually, it will ruin your trading career. Limit the risk per trade by using a 1% risk management policy so that you don’t blow up your trading account.
The risk to reward ratio
Using 1:2+ risk to reward ratio is one of the most vital things at trading. If your risk management policy allows you to trade with a 1:1 risk to reward ratio, you don’t have a good risk management plan. The professional traders always try to trade the market with a 1:3+ risk to reward ratio so that they can make a big profit without losing too much. To become the best trader you can, you have to think about the recovery factor. Using a higher risk to reward ratio in the Forex trading industry gives you a huge advantage when it comes to recovering the losing trades.
Always use protective stops
To make yourself secured from the unexpected price movement you need to use protective stops in each trade. Using mental stops is not going to work. The elite traders at Saxo always rely on simple stop-loss since it keeps the fund safe. But to set the perfect stops in the market, you need to learn to find the critical levels. Use the knowledge of critical highs and lows to find your desired stops. Make sure you are not using too tight stops since the market might hunt the stops of the retail traders.
Use leverage effectively
You need to learn the use of leverage in a very effective way. If you start trading with crazy lots to earn a big profit, you are not effectively using the leverage. The elite traders at Saxo are making big profits since they never take a high risk of trading. Even though they have decent buying power still they prefer to trade with a small lot. Before you start trading the real market, use the demo account and see how you can use the leverage. Make sure you never become a greedy trader by getting access to a leverage trading account.
Control your emotions
One of the best ways to protect your trading capital is to control your emotions. If you fail to control your emotions, you are going to lose most of the trades. The emotional traders are always placing random trades and trying to recover the loss with high risk. On the other hand, the smart traders at Saxo trade with discipline. They have a unique strategy so that they can find the best signals. To control your emotions you can start using a trading journal. The trading journal is nothing but a diary where you will write down the details of the trade. If you maintain a trading journal, you will think about the trades before writing the details in the journal. This will gradually become your habit and you won’t trade the market with emotions.
