Useful risk management tips for a beginner trader
I was speaking to a friend of mine a month ago and all of a sudden she told me she started trading some months back. I was surprised because she never for once showed interest in trading or financial issue.
So I asked her yesterday how her trading experience is going although I had a feeling that it was going to be a whole lot of bad news. My guess was as right as yours, she said she had lost more than fifty percent of her capital. I was not surprised at all as I expected that it was going to happen.
A lot of people are entering into trading because of the hype and promise of a better and richer future. However, a lot of people go in without proper knowledge of things work.
A lot of people feel it's only about speculating the price or the direction. I wish it was that easy. If it was that easy a lot of people would have been millionaires by now. But sadly, the reverse is the case.
In this post, I will be writing on useful tips on risk-taking in trading be it cryptocurrency or forex.
https://cdn.pixabay.com/photo/2018/07/31/22/07/risk-3576044_960_720.png[Pixabay](https://pixabay.com/vectors/risk-risk-management-risk-assessment-3576044/)
1. Trade with disposable income when starting.
I have had personal experience with people who go into trading with money they can't part with and later begin to carry fake news that crypto or forex is a scam. Crypto and forex trading is a very risky game as you can lose your money within seconds to minutes. This is why it is important to have adequate knowledge of what you are getting into. In summary, as a beginner, your trading capital should be funds you can do away with.
2. Predetermine your risk
There are a lot of schools of thought on the amount to risk in terms of percentage of total account. Some sources believe in the 2% rule which says that you should only risk 2% of your capital per trade at any point in time. Other sources claim that the risk can range between 1-3%. I prefer the 2% rule as it makes it easy for me when I am reviewing my account.
3. Never widen your stops
There are different schools of thought on this topic. I know a very popular hiver who feels that there is no need for stops.
I can confidently tell any beginner that the most important thing that will keep you in the game is a well-calculated stop loss.
A lot of beginners have this common story where they say they had a feeling that the price was going to reverse so they moved their stop loss a little further. When asked why? They will most likely tell you of a trade they canceled that eventually reverted.
All I am saying is in all you do, never widen your stops. Once you start widening your stop loss, getting rekt is inevitable.
4. Apply the concept of risk-reward ratio.
Most traders think trading is about seeing the green or blue figures more than the red. Most times when someone comes to tell me about trading I ask for his trade records so I can see his risk management skill.
I was speaking to a friend some days ago and he told me about a guy whose trades are always in profits and he hardly has a loss. I asked for the screenshots and yes I saw a lot of blue figures but the reds in between were causing greater damage to the account than the sum of the blues.
The reason this happens is that they don't apply the concept of risk-reward ratio. Ideally, the risk to reward ratio should be greater than 1.5 at any given time per trade.
There are more things on risk management but these few should help anyone starting out in trading to be successful.
I will like to end this post with a sentence I got from @forexbrokr
It's not about winning all the trades, it's about staying in the game.
Thank you for reading
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