The Money and Risk Management in Trading Plan

A key component to achieving an optimum trading mindset consists in having a sound money and risk management component in the trading plan.

By taking a small loss early on, a trader can then be fresh to reevaluate their position in the market or to step back and get back into the market at a better level.

In fact, many successful traders take more losing trades than winning trades. The difference for them is that the winners are allowed to run their course while the losses are taken quickly.

Manage Trades Efficiently

The key to keeping risk at manageable levels consists of recognizing when a trade has run its course and so a profit, however small, needs to be taken. Running winners into losing territory or doubling up on losing trades can often spell disaster for any trader's account.

Add a highly leveraged trading position in an under funded trading account to this risk, and the amount of time for the account to be completely consumed by a relatively common market price swing is greatly reduced.

As a result, having the discipline to keep stops in place at all times, along with not having too much money on the line at any given time will tend to increase the trader's longevity in the sometimes brutal forex market.

Overall, margin and leverage can benefit only those who know how to use them wisely, much like many good tools. Make sure that leverage works on your behalf, otherwise losses can accrue much faster than on an unleveraged trading position.

Another thing you should consider is which trading sessions offer the best opportunity to make trades? This tends to depend on which currency pair you are trading.

For example, trading in the Japanese Yen may not have the same degree of liquidity and information flow during the New York session, as might be seen during the Asian session.

Riskier Trading Times

Some forex trading times can present greater trading risks than others and you can take this into account as part of your risk management. For example, forex trading times which seem to be avoided by many forex trading professionals include:

  • Fridays

While many technically-based traders avoid trading during these times, often due to reduced liquidity and/or the discounting of new information, some traders look forward to trading the more volatile markets which these periods typically provide.

Conclusion

Novice forex traders often tend to complicate matters when it comes to trading. Nevertheless, by following a few basic and relatively simple guidelines, all a person needs is the willingness to learn and to have the discipline to stick to a trading plan in order to be successful.

Trading is a risky business in general, and many people have lost large sums of money because of not taking some of the simple measures outlined above.

Remember, trading is not for everyone, you will do well to prepare yourself as much as possible before committing your funds to forex trading.

  • Sundays
  • Holidays
  • Major news releases
  • Major economic number releases, such as U.S. Non-Farm Payrolls