Forex Risk Management Applications » Short Haircuts Models

Forex Risk Management Applications » Short Haircuts Models

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Forex Risk Management Applications, Know when to take your losses; let’s start with the most challenging forex risk management app, Knowing when to exit. If you have not traded with real money before, you will not understand why this is so difficult, but one day, after risking your money, you will understand.

Because in forex trading, it is always possible for a currency pair to change direction, so don’t fool yourself into thinking that it will, even if the probability is infinitesimal. This is when investors stupidly expand the stop loss business, think, “I’ll let him have a little more …” and almost every time, losses become more significant.

A good forex risk management application will prevent you from falling into this trap.

Rationally adjust your stop loss with the strategic logic behind what you are doing, and then stick to your logic. Don’t let your feelings take you away. Check the risk in each trade, and your profit will increase.

This author once traded an exotic currency against the dollar for more than a month, and each transaction was successful, as the currency pair moves in a completely orderly manner. It didn’t happen until one day. And yours got really angry and couldn’t believe it and kept stopping the stop… and lost a lot more money than it should have. Do not make the same mistake. Remember what Forex professionals say“ “The trend is your friend … until it is not so!”

Use Location Sizing Forex Risk Management Applications

Another basic rule is to check the size of any position you take. For example, if you have $10,000 in your trading account, don’t put all of the $10,000 into one transaction. Divide your funds for use in different positions. This division does not have to be equal: you may want to have funds that are used for less risky transactions, and smaller amounts for more risky ones. This is really a good strategy for beginners.

Obviously, if you divide your funds into very small portions, not only will you not see a lot of gains when you win in a trade, but you also risk that small market fluctuations will overtake your stop loss before the trade has a chance to exercise properly. So be reasonable but be careful.

Adherence to Logic
calculating how much money you earn or lose per 1 pip move is relatively simple. But it is not necessary to think in these terms (they tend to worry traders). Before taking action, decide what the desired exit point will be; reasonably. Now consider how the strategy will work to get to this exit point. When you see that the strategy is not working, how will you decide that it has failed?

Let’s say I have been staying in USD / GBP for a long time and I see that the pair has hit the resistance of $ 1.10. It falls and then hits resistance again at $1.10. How many times should this happen before closing the transaction? Make this decision and press the close trade key no matter how bad it makes you feel.

Try Hedging
Hedging, in its simplest form, means performing two operations at the same time, so that if one loses, the other closes the losses.

Most brokers do not allow direct hedging, the simplest and most effective of which is: you trade USD / GBP and at the same time GBP / USD. Close the losing trade faster.

But there are other types of protection that help control risk, such as forex options.
A forex option is an agreement in which a certain price will be exchanged in the future. For example, you make a transaction to EUR / USD from 1.30. To maintain this position, you place a “precautionary option”, which means a sell order from 1.29. This will cost you only the purchase price of the option, if it does not happen.

There are also more complex approaches to hedging; and a trader should study them if this type of risk management seems attractive.

If you don’t have a lot of money on the market; we think simplicity is better when it comes to forex risk management. However, hedging correctly requires an in-depth understanding of the market, and investors risk large-scale losses if they are not at this level. Bottom line: do not take risks if you are not very confident in predicting fluctuations and timing in the market.

But every investor should choose what feels right. The main thing is to make a choice and stick to it.

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