There’s nothing worse than being close to the money, only to have it suddenly go against you. It can be disheartening and leave even the most experienced of traders feeling that they are not cut out for this game. The fact is, trading is full of ups and downs, with just as many opportunities as there are disasters.
Every trader has a set of personal rules that they follow when it comes to trading, which defines their style. However, there are also several things in common among all traders because by learning from past mistakes, the industry can grow and adapt. The key to success in any trade is mastering risk management.
Risk management is one of the most important factors for every trader who wants to succeed long-term. Mastering this skill can be learned through proper guidance and experience; however, many people are still not taking advantage of what’s available to them when it comes to this specific topic.
Here are some golden rules for managing your risks like a pro trader:
When starting, it’s easy to get excited and want to put all of your eggs in one basket. This is an amateur mistake that will cost you dearly over time. Always make sure that the amount you’re trading won’t affect you too badly if things don’t go according to plan.
The moment you’ve made enough money from trading, stop trading and find a long term investment vehicle such as bonds or stocks. You should only be trading to supplement your income and not replace it.
In the heat of the moment, you may ignore this advice, but trust me, and you shouldn’t risk more than 1% of your capital on one trade. Those out there will say that you should never risk more than 2-5% max; however, I strongly disagree with this statement! If you know what you’re doing and believe in yourself. Betting big brings a lot bigger rewards over time.
When planning out my trades, I ask myself one crucial question: “What if this goes wrong?” And then plan an exit strategy accordingly. It’s easy to get complacent once you’ve made a few successful trades; however, it really is the worst thing that you can do when managing your risks like a pro trader.
The moment you enter a trade, always start planning your exit strategy. By this, I mean knowing exactly what price will make you want to cash out of your position and then work back from there! You should also consider any news or other factors that could affect the direction of the market. Without an exit plan, you are setting yourself up for failure.
Ensure that you have a well-defined plan in place to avoid any short term temptation from giving into high risks.
Do not let your emotions cloud your judgment when making important decisions for the sake of long term success.
Take time out of your daily routine to learn from other experienced traders, mentors, or professionals willing to help you improve your trading skills.
Keeping a trading journal can be very helpful because it will include important data about your progress which you can refer back to later on if needed.
Risk management is one of the essential skills you can master when trading in any market. There are several ways in which you can improve your risk management abilities. Still, we must remember that learning from past mistakes is one of the best strategies out there because it allows traders to learn about their behaviours and work on correcting them if need be. Beginner traders are advised to use a reliable and reputable online broker from Saxo Bank; for more information, go to site here.