Risk Control in Currency Trading

Many new currency traders just don’t know and understand the fact that risk analysis and money management is important in currency trading. Many think, “Why money management has to be so boring and not sexy,” when they hear the word money management. It’s just this kind of behavior that gets average novice trader into trouble. Why money management is so boring?

Most of the novice traders do in fact think that the currency market will do exactly what they want it to do and they will end up with a trade that can make them a lot of money. Getting into a trade is thrill enough in itself at first glance. Everyone wants to make money and a lot of money. You seduce yourself into thinking that once you enter the trade, it will be honky dory.

You find out to your surprise for some reason or another currency market is not complying with the plan of making a lot of quick cash and is not going in the desired direction. Then all of a sudden it seems that the market is not at all cooperating. Instead, it is going in the wrong direction.

The trade couldn’t go wrong in your opinion. It was a sure thing at that time. Now it has gone so far in the wrong direction that you may have difficulty in getting out. The gut feeling was so clear and compelling when you had entered the trade.

Where did you go wrong? What happened that changed everything? Do you know now that most of this evolution of a position gone bad has to do with you entering the market and risking real hard earned money without having a plan, a stop and a tested money management system before entry. What to do now?

Until we suffer a few losing trades to bring the concept home, most of us do not think it painful enough to change our thinking and take sound money management seriously. Now many of us have faced this type of a situation.

After making a number of losing trades you start wondering what the psychology of risk control is. The psychology of risk control sooner or later begins with genuinely believing that you will benefit from a risk control plan. You will experience less anxiety in your trading and will be able to implement your trading plan more consistently when you have mastered your psychology.

You will reduce your level of stress and anxiety during trading by limiting your loss potential on each and every trade. Never ever risk more than 2% of your equity on a single trade. So the most you will lose on a single trade will be $200 if you have a $10,000 trading account. Think of it as getting a step closer to the winning trade instead of fearing a stop out when your trading system tells you that the trade has gone bad.

You must make it very clear that money management and risk control is the most important think in currency trading. It is only sound money management and risk control that will help you survive the currency markets in the long run. You will begin to see the profits increase as you gain confidence in your money management plan. Your pride will increase from generating greater profits from each trade. That increased pride will make you more confident in your abilities to become a successful trader.