Proper risk management should ensure that forex traders maximize profits when a trade succeeds and minimize losses when a trade fails. So how do you set up risk management to best suit you?
In our last article, we wrote a bit about how in trading you should focus on your exits, which can often be more important than the way you enter the market. Therefore, when you are designing and possibly testing your exit strategy, you should place a lot of emphasis on how you will exit your positions and how you will treat risk management.
Focus on exits
Dealing with the right exit from the market is much more complex than an entry, as many factors play a role and each trader has different expectations. Realistically, it is thus virtually impossible to ideally exit the market in such a way that you get the most out of the market every time. On the other hand, a trader who has mastered an exit strategy and can rely on it is much better off mentally and makes fewer unnecessary mistakes. This is even when his trades end up in losses.
And since in forex, it’s a case of one trader, one approach, let’s take a look at some of the basic most common ways you could (or should) approach risk management and therefore how to handle exits from the markets. We won’t write about the basics of risk management here, we wrote about that in an earlier article. We also reckon that entering SL and TP is a given for traders trying to manage risk properly.