When you begin your journey as a trader, you are putting your hard-earned capital at risk.
Often, the last thing a new trader thinks about is how to manage risk. Instead, they are thinking about getting perfect entries or how many trades they can find in a day. And very often they are thinking about how to spend their profits!
But managing risk should be the first item on a trader’s To-Do list. Ask any successful trader about their trading and they will speak about how they manage risk to achieve their goals. The head of the largest hedge fund in the world, Ray Dalio, writes in his book, “If you are not defensive, you are not going to keep money.”
What does it mean to manage risk? How do we do it? This module gives you a solid risk-management plan in easy to digest lessons.
Lesson 1 talks about the top three things you can do to control risk to be profitable and consistent.
Lesson 2 focuses on “Risk Capital”. What do you need to do to be sure you are trading with money that is truly Risk Capital? Find out in Lesson 2!
Lesson 3 is all about controlling the size of your trades, so you are risking a pre-defined percentage of your account for every trade. This is called “Position Sizing”. And FXAcademy has an easy way to calculate this for you. Find out where in Lesson 3!
Lesson 4 looks at how to measure your profits and when to take them. We introduce the concept of the “Risk/Reward Ratio”. This concept should be behind every trade you place.
Why does it matter to manage our risk? Is it that important? What do successful traders say about risk management? What do the regulators say? Let’s start at the beginning and ask, WHY is risk management important?
How much do you start trading with? What is risk capital?
The first decision you make as a trader is to fund your account with real money. How much money should that be? Have you made sure that the money you are trading fits the definition of risk capital?
There are three very important questions to ask yourself when you make the decision to risk your money in the markets. We ask you the right questions, so you can start in the right place, and you can trade comfortably without fear.
When you place a trade, you must decide how many lots you want to trade.
Let’s say you are buying EUR/USD with a 50 pip stop-loss. Should you trade the same number of lots as a USD/JPY trade with a 30 pip stop-loss? How do you make that calculation?
How do you decide in the first place how much of your account to risk on a single trade? That’s the real decision you are making when you decide how many lots to trade.
In this lesson we will take you through an easy process to make sure you risk just the right amount on every trade to help protect your capital but still let it grow.
You are in an open trade that is in profit and you want to realize your profit and exit the trade. What level do you take your profits? How many pips?
Most traders think of their profit in absolute terms, but it is always relative to the risk you took to get that profit.
To complete your solid risk management plan, we help you figure out what’s a good profit and how to measure that against the risk you took. We introduce you to an important tool in a trader’s arsenal: the reward/risk ratio, or what is often known as “units of risk”.