Forex Trading & Risk Management
If you have not yet become a member of the Income Mentor Box Day Trading Academy, you might want to try it out. We are all about helping you become the very best day traders you can be. This goes for Forex, CFD, stock, indices, commodities, and crypto trading. Our main goal is to help you become a profitable and self-sustaining day trader so you can quit your 9 to 5 job. One thing that you definitely need to know about as a trader is risk management.
Being able to engage in effective risk management will help produce both short and long term results, good results. If you do not have good risk management skills, your shelf life as a trader is not going to be very long at all. This is why we are here today, to give you some of the most important trading risk management tips to put to use. If you follow our risk management tips, you will end up being much more successful as a trader, especially when it comes to preventing major losses happening time after time.
Risk Management – Prepare For The Worst
Now, as you know, here at the Income Mentor Box Day Trading Academy, we are all about teaching you to be the best traders you can be. With that being said, risk is something you are always going to have to deal with. This is true whether you are trading Forex, CFD, indices, commodities, stocks, crypto, or anything else. Risk is an inherent factor in the market and you better get used to it quick. Even the best of the best day traders out there can lose a lot of trades and money if they don’t engage in effective risk management.
One thing that you need to be prepared for here, in terms of risk management, is to lose all of your money. Yes, you need to be prepared to lose. This means that you cannot have any qualms about losing an investment. In other words, never trade with money that you don’t have to spare. If it comes down to paying your electricity bill for the month or placing a Forex trade with your last $200, you need to pay that electricity bill. Never trade with money that you are not prepared to lose in full. It just is not worth it.
Always Use Stop Loss & Take Profit Levels
Another big risk management tip, when trading Forex or anything else for that matter, is to always use stop loss levels. Here at the Income Mentor Box Day Trading Academy, we have some great lessons on both stop loss and take profit levels that you absolutely need to check out. In layman’s terms, a stop loss level is a specific pip amount, percentage, or money value which you can set to cut your losses.
In other words, if you make a $500 investment, you can set the stop loss level at, let’s say, $250. This means that if your trade happens to tank, the position will automatically close and spare you from losing that last $250. No, of course losing trades is not ideal, but when it comes to risk management, being able to cut your losses and recoup some of your investment when a trade goes south is a really big deal.
The same goes for take profit levels as well. This is the same thing as stop loss, but only in the other direction, the winning direction. For instance, for that same $500 Forex trade, you can set the take profit level at $750. Therefore, the trade will close when you have made a $250 profit. This is a great risk management tip because it stops you from being greedy and allows you to walk away with a certain amount of profits. Take profit levels are important because even if a trade is winning now, it might go south real quick.
Risk Management & Leveraging Trades
If you are a member of our Income Mentor Box Day Trading Academy, you probably know what leverage and margin is by now. If you don’t you should join our academy and learn all about it. At any rate, when trading Forex and other asset types, you can leverage your trades. For instance, you can leverage a trade by 10:1. For example, if you want to place a $10,000 trade, but only have $1,000 to invest, you can leverage your trade by 10:1. In other words, you only have to invest a tenth of the money to trade with when you open that given position. The $1,000 you have to put down is kind of like a down payment. That $1,000 is called the margin.
Now, Forex trading often allows traders to leverage trades by up to 500:1. Now, the thing here, in terms of risk management, is that leveraging your trades can be both very profitable and very dangerous. For instance, if you place a 10:1 trade with an overall value of $10,000, if you win the trade, good for you because you get the full winnings based on that full $10,000. However, if you lose the trade, you are also on the hook for that full $10,000, not just the $1,000 margin which you had to invest to leverage the trade.
As you can see, leveraging your Forex trades can turn out very profitable. However, it is also very dangerous. As a beginner trader, we here at the Income Mentor Box Day Trading Academy would recommend that you don’t leverage trades, or maybe only my small ratios, such as 2:1 or 5:1. In terms of risk management, leveraging Forex trades is extremely risky and dangerous. Unless you are a professional day trader and really know what you are doing, it’s something you should probably stay away from for now.
Don’t Go Hard After A Big Loss
We recently did an article on how to come back after a big trading loss. Well, one thing we talked about there is to start off small again, and not jump right back into it. You see, in terms of risk management, one of the worst things you can do after suffering a big loss is to try and recoup that full loss, and more, in the next trade. The reason for this is because after you suffer a massive trading loss, your trading capital is already stressed out. You just lost a ton of money.
Now, people may be tempted to try and make up for this loss in the next trade. However, what happens if that trade also turns out to be a big loser? The overall result will be multiple big losses and a trading account that has been wiped out with just a few trades. The risk management tip here is to not trade blindly or with emotion, and don’t invest way more than you usually would to try and make up for a loss. Yeah, it might turn out ok, but it can also go oh so wrong.
Risk Management – Avoid Over Aggressive Trading
Yet another risk management tip that we here at the Income Mentor Box Day Trading Academy have to stress is that you should never trade too aggressively. This goes double if you are a newbie trader that just doesn’t have the experience to be an aggressive trader. It’s just like driving. There is a reason why driving schools always include the words “defensive driving”, because trading defensively, so to speak, is a good risk management technique.
As a new trader, this means that you should not open more than 5 trades at once, and also limit the amount of investment per trade to a few hundred dollars. Just don’t overdo it. It’s much easier to lose trades, and to lose a lot of cash, when you have a ton of big trades open at once. It’s not only about managing risk, but also being able to manage trades, specifically the number of trades you have open. It’s just hard to keep track of things when you have way too many trades open at the same time.
Risk Management – Final Thoughts
The bottom line is that as a day trader, you need to be able to engage in effective risk management. If you don’t know to do this, your profits and win rates will suffer drastically, especially over a long term period. Remember the risk management tips we provided here today, because they are going to come in very handy.
Once again, our Income Mentor Box Day Trading Academy is all about helping you be the best and most profitable day trader you can be. For the low cost of $299, which is a single onetime payment, you will get access to our full course materials. This includes tons of trading lessons, a free EBook, a free signals provision service, and access to a member’s chat room too. Folks, if you want to start making consistent profits through day trading, this is the place to learn!