Risk management is a very crucial part of a Forex Daily Info trading plan. Without proper risk management, trading would be a horrible nightmare for you. It wouldn’t be easy to gain money, and you’ll lose your funds as easily as fetching water using a dipper sprinkled with holes.
Why is risk management important?
Risks are generally about the potential losses you may experience when you enter a trade. However, this is surprisingly one of the most ignored part of a trading plan. This is because many traders just want to get into trading but are too hyped up to think about risks and their total account size.
When investors simply think about Forex Brokers Review how much they are willing to lose in a single trade and then go trade, trading effectively becomes gambling. And that’s not good.
When you trade without risk management rules in mind, you’re gambling. Also, you’re not aiming for the long term gains on your investment. You only want the instant win or the jackpot.
But if you set up your own risk management rules, you can be protected unnecessary losses. Doing this also makes you very profitable in the longer run.
Trading vs. Gambling: The House Always Wins
Consider the case of casinos and casino gamblers.
People go to casinos with the aim to win more than they lose, or maybe hit the jackpot and take home lots of cold cash. Well, many people in fact do that. They win and go home with a great smile on their faces.
So, how do casinos make so much money if people actually win and hit the jackpot?
The simple answer is that the casinos still earn a lot from those who bet their money and lose. In the longer run, casinos benefit from more people losing, even if some people win each day.
Even if one wins a huge chunk of money in that casinos, the house knows that there will be more losers than winners, and the money lost will just come back to the casinos’ pocket.
This is how risk management essentially works. If you know how to control your losses, you can be more profitable.
Tweaking each factor and considering them
At the end of the day, trading is all about how you can manipulate and guess the next numbers. And to better do those things, nothing beats making thorough trading plan.
Risk management requires you to list down all the factors that can affect your trades. See which of these factors can affect your trades negatively, and see which ones are good. Once you’ve listed down all the risks and potential benefits of a trade, try and tweak them to fit your trading plan, goals, and risk tolerance.
The more risks you can remove or minimize, the better chances you have at winning that trade. In other words, always try to have more factors on your side rather than against you. Having discipline and more patience can help you a long way when trying to manage your risks.