We attack here the first lesson of what we call "the work of the trader," ie anything that does not concern itself analysis ... If you're wondering what that trading may well ask as to jurisdiction share analysis, then you are at right place.
For some people, these principles seem obvious. However, keep in mind that when you are actually investing money, it is also reflects more lucidly. It is earned by stress, fear , and hope , which can sometimes "pollute" our ability to make rational and effective decisions.
So that's where risk management comes.
Indeed, setting in advance of strict rules , it is possible to overcome the difficulties caused by emotions such as fear or hope, two of your biggest enemies when it comes to trade on the Forex .
The risk management is a concept a little tote, here we will teach you the most essential concepts that you will need immediately at the beginning of your career as a trader
Thus, with a change of 100 pips in the opposite direction of your position, you already lose $ 500, or half of your capital .
And once you get to 200 pips lost your money is gone, and you take what is called a "margin call", meaning that the broker automatically shuts your position and your account is zero ...
There is no specific rule to determine what proportion of the margin available to be used, but in this case (deposit $ 1000, leverage of 100), it seems sensible to be limited to positions 10000 units, where the pip value is $ 1 on EUR / USD.
Using your money carefully, you'll be able to cope in the event of a reverse transient changes to your position. You will be able to hold the position as long as you again become favorable trend (if you have good reason to believe that your position is always appropriate and that you simply made a mistake in timing).
To conclude, it must therefore not be too greedy . Certainly more the position, the bigger the gains are quick and high, but do not forget that it also works with the losses!
Accept patiently gains reasonable positions, do grow your capital, then increase the size of your positions, this is the best way to go for on the last trading.
You can indeed pass the orders automatically stops and limits on your platforms, so that the positions will be automatically closed if they have reached the stop or limit.
The utility stops and limits
The interest is obvious in the case of stops: Do not get caught up in the game of"what's good, it will go up" because in doing so you will be hanging long losing positions, which will begin your line and thus your ability investment.
Our opinion is that if prices go the wrong way, it is better to accept it and move on .Things are moving very quickly on Forex, and it is better to accept being wrong than to wait until prices rise and pass opportunities.
For the limits, it will avoid being "too greedy" waiting too long before taking his winnings on a winning position. Many traders doing so were surprised by the speed at which prices come back down from a peak ...
An old stock market adage that trees do not grow to the sky, and it is better to take profits too early than to expect too much to cope with a sudden downturn that destroy your winnings.
We strongly recommend that you place your stop and limit orders automatically triggered just after your position, and not to touch it . Once the position, it is more lucid, and one may be tempted to disregard the rules that we have set, which is generally a bad idea.
Moreover, with stops and automatic limits, you will not have to monitor the position closely, which is more comfortable.
How to choose the stops and limits?
First, you should know that the more you invest in the short term, the more our stops and limits will beings tight.
then it all depends on your strategy, it depends on the risk you want to take ...
However, it will ensure that your limits are always wider than your stop.
We need your winning positions earn you more than you are losing your losing positions.
But this principle is not enough to position his stops and limits. In fact, risk management is involved in the choice of levels on which its stops and limits will be positioned, but the analysis also involved. So you will find in our University of Forexnot a step way to know exactly where to place your stops and limits.
Conclusion
In conclusion, the risk management objective is to help you overcome the psychological errors, errors that can lead you to your emotions. But for that, it is also essential to know yourself, to know the psychological biases that are often subjected trader: This is the subject of the next lesson.
What is risk management?
Risk management, also known as money management is a set of rules and principles that will help you maximize the efficiency of your operations, and avoid taking too much risk, or at least risks not mastered.For some people, these principles seem obvious. However, keep in mind that when you are actually investing money, it is also reflects more lucidly. It is earned by stress, fear , and hope , which can sometimes "pollute" our ability to make rational and effective decisions.
So that's where risk management comes.
Indeed, setting in advance of strict rules , it is possible to overcome the difficulties caused by emotions such as fear or hope, two of your biggest enemies when it comes to trade on the Forex .
The risk management is a concept a little tote, here we will teach you the most essential concepts that you will need immediately at the beginning of your career as a trader
Managing your capital
First rule: do not use too much of your capital
Here, the concept of margin available is paramount. As a reminder, the margin is the amount that you can intervene, taking into account the leverage . For example, if you have deposited $ 1,000 in your account and you use a leverage of 100, your available margin is 100 000.
However, you should never use too much of your available margin, you should be wary of the effect of leverage allowed.
For example, in the previous case, if you take a large position in terms of your capital, eg 50,000 units, each 1 pip represent five dollars.First rule: do not use too much of your capital
Here, the concept of margin available is paramount. As a reminder, the margin is the amount that you can intervene, taking into account the leverage . For example, if you have deposited $ 1,000 in your account and you use a leverage of 100, your available margin is 100 000.
However, you should never use too much of your available margin, you should be wary of the effect of leverage allowed.
Thus, with a change of 100 pips in the opposite direction of your position, you already lose $ 500, or half of your capital .
And once you get to 200 pips lost your money is gone, and you take what is called a "margin call", meaning that the broker automatically shuts your position and your account is zero ...
There is no specific rule to determine what proportion of the margin available to be used, but in this case (deposit $ 1000, leverage of 100), it seems sensible to be limited to positions 10000 units, where the pip value is $ 1 on EUR / USD.
Using your money carefully, you'll be able to cope in the event of a reverse transient changes to your position. You will be able to hold the position as long as you again become favorable trend (if you have good reason to believe that your position is always appropriate and that you simply made a mistake in timing).
To conclude, it must therefore not be too greedy . Certainly more the position, the bigger the gains are quick and high, but do not forget that it also works with the losses!
Accept patiently gains reasonable positions, do grow your capital, then increase the size of your positions, this is the best way to go for on the last trading.
Management positions with stops and limits
We previously learned how to manage our capital, now learn to manage our positions.In this area, the concepts of Stops and Limits are paramount. Let's start with definitions:
Stop
Called stop limit maximum potential loss that binds. This is the threshold at which we believe that we were wrong in our position, and that our analysis is wrong.
This means that we cut our positions once the stop is reached. For example, you buy EUR / USD at 1.3060: If your stop is 10 pips, then you will set to 1.3050, and then cut your position in the course.Called stop limit maximum potential loss that binds. This is the threshold at which we believe that we were wrong in our position, and that our analysis is wrong.
Limit
limit is the opposite of a stop. It is therefore the aim of gain that is fixed. This is the threshold at which we believe that it is wiser to collect his winnings to hold the position. Specifically, with a limit of 10 pips, if you buy EUR / USD at 1.3060, you sell at 1.3070.
Stops and limits can be defined "oral" or automatically , that we recommend.limit is the opposite of a stop. It is therefore the aim of gain that is fixed. This is the threshold at which we believe that it is wiser to collect his winnings to hold the position. Specifically, with a limit of 10 pips, if you buy EUR / USD at 1.3060, you sell at 1.3070.
You can indeed pass the orders automatically stops and limits on your platforms, so that the positions will be automatically closed if they have reached the stop or limit.
The utility stops and limits
The interest is obvious in the case of stops: Do not get caught up in the game of"what's good, it will go up" because in doing so you will be hanging long losing positions, which will begin your line and thus your ability investment.
Our opinion is that if prices go the wrong way, it is better to accept it and move on .Things are moving very quickly on Forex, and it is better to accept being wrong than to wait until prices rise and pass opportunities.
For the limits, it will avoid being "too greedy" waiting too long before taking his winnings on a winning position. Many traders doing so were surprised by the speed at which prices come back down from a peak ...
An old stock market adage that trees do not grow to the sky, and it is better to take profits too early than to expect too much to cope with a sudden downturn that destroy your winnings.
We strongly recommend that you place your stop and limit orders automatically triggered just after your position, and not to touch it . Once the position, it is more lucid, and one may be tempted to disregard the rules that we have set, which is generally a bad idea.
Moreover, with stops and automatic limits, you will not have to monitor the position closely, which is more comfortable.
How to choose the stops and limits?
First, you should know that the more you invest in the short term, the more our stops and limits will beings tight.
then it all depends on your strategy, it depends on the risk you want to take ...
However, it will ensure that your limits are always wider than your stop.
We need your winning positions earn you more than you are losing your losing positions.
But this principle is not enough to position his stops and limits. In fact, risk management is involved in the choice of levels on which its stops and limits will be positioned, but the analysis also involved. So you will find in our University of Forexnot a step way to know exactly where to place your stops and limits.
Conclusion
In conclusion, the risk management objective is to help you overcome the psychological errors, errors that can lead you to your emotions. But for that, it is also essential to know yourself, to know the psychological biases that are often subjected trader: This is the subject of the next lesson.
The Basics of Risk Management