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Risk management in Forex Trading

1/5/2017

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As a trader, you cannot win the market 100% of the time, maybe you wont be able to win the market 80% of the time. In fact, probability of success for most traders is 40%-70%. Some might start to question if forex trading is worth doing if probability of success is low.
You need not be too worried as long as you stick to your plan and have a good risk management. A risk reward ratio of 2 and above will be good, even if you lose 50% of your trades, you can still be profitable.

Personally, I prefer looking for strong trends and get into a position with tight stop loss. If my trade is successful, my risk reward ratio can be as high as 10. If I risk 1% of my equity on each trade and i can achieve a risk reward ratio of 10, that will translate to 10% equity return on a single trade. That is an extremely good trade. But you need to understand that good trades are hard to come by and you need to be patient. My experiences tell me that in pursuit of trades with high risk reward ratio, your probability of success will decrease. Tight stop loss does not allow price to fluctuate and your position may get wiped out. It is critical that the position is entered at critical levels and there are candle stick patterns (reversal and continuation chart patterns) to back it up.

Trade well!
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