Risk Management
We have covered how to calculate position size – now we move onto the second part of the triangle-
Risk management tells you how many pips to risk on each trade and once in a trade, how you are going to manage your risk.
The Forex market behaves differently than other financial markets, its speed, volatility and its liquidity makes the Forex market unique. Any currency can become highly expensive or very cheap in relation to any other currency in a matter of hours or even minutes. This unpredictable nature of the Forex market can produce excessive losses in short periods of time.
For this reason we need to protect ourselves, we need a methodology to protect our capital during periods of intensive volatility such as: unexpected corrections in currency pairs, wild variations in foreign exchange rates, etc.
In this lesson we will review the most important aspects of risk management and it is structured in the following way:
Section 2: Risk-Reward Ratio
an incredibly important aspect of risk management and how different RR ratios can affect our trading.
Section 3: Stop Loss Orders and Take Profit Orders
stop loss orders allows traders to cap losses.
Section 4: Where to place SL Orders
it is very important to find the optimum place for our SL orders; otherwise, it will get hit regularly.
Section 5: Placing stop loss orders based on a fixed percentage
the simplest technique to set SL orders
Section 6: Placing stop loss orders based on important levels and market behavior
the most objective technique to set SL orders.
Section 7: Placing stop loss orders based on volatility indicators (ATR)
an indicator based technique to place stop loss orders.
Section 8: Trailing Stops
a risk management technique that allows us to protect our trade once it is in profits.
Section 9: Summary
A brief summary of the chapter