Speaking about Professional trading we considered such questions as forex history, Trading Self Check and various ways to diversify trading portfolio (read more Ultimate investment: currency vs. gold, Ultimate investment: immpbile property vs. forex, Ultimate investment: clothes or bank)
Let’s have technical practice and consider several successful trading moments, starting with the risk management.
The risks management is probably the most burning issue of the trade as correct risks management leads to great results or brings you losses and you turn out to be a broke.
One of the most popular trading practices is the 5% rule. It means that in each of your deals you let you loose not more than 5% by placing a corresponding stop loss.
The 5 Percent rule
Let’s consider a chart reflecting the USD state since 2008. We can see a strict trend line on the level 1.2000$ in March by 1.5500 by August 2008. Suppose that a trader with deposit of 10 000$ on the standard account decides to buy Euro once it is below this trend line in August, with the mark of 1.4470. If the 5% rule was applied, a trader would not risk more than 500 USD in this deal. As one point scale constitutes 10 USD, it means that the stop loss should be placed on the mark 1.4420.
On this chart the blue line going up means the moment of opening the deal on the level of 1.4470 once the price gets below the trend line. Using the 5% stop loss, we can close the deal once it hits 1.4420$. Suppose that the trader does not use the stop loss. We can see the market trading on the $ 1,2330 level, i.e., 2140 points lower. It may mean the loss of $21.400. If not for the stop loss, the trader could miss the total deposit.
Thus, wise risk management enables the trader to avoid the risky situation. I believe, everybody can agree that the wise planned loss of 10 000 is much better than the emotional loss of 50 000.
