Beginners often try to find effective ways to reduce their losses in their Forex trading but they do not find any solutions. Today, we will try to focus on the common mistakes that can be avoided to reduce loss in the trading. Investors must take drastic actions against their emotions so that they will not affect their trading goals. To reduce the potential losses, you must know about money management policies and you must have deep knowledge of and a perfect understanding of the Forex market.
Steps to reduce losses:
1. Risk tolerance level
Different traders have different mindsets, and they differentiate the risk tolerance level based on their individual decisions. An investor may think comfortable losing 3% of his account balance and may not wish to take more risk than that.
On the other hand, a few investors may think taking the risk of 3% can be so much, and it can be harder for them to make up the loss. They may prefer to take 1-2 % of risk per trade, and this can be justified by them. Therefore, you should analyze your risk tolerance based on your personality so that he can determine the risk management policy from the beginning of our trade.
2. Emergency money
Investors in Hong Kong should stop trading with emergency money they had saved for their family maintenance for a year. If they lose it under the pressure of the business, then they cannot afford our living, and aggressive strategy can be enough to blow up a retail trader. That’s why you should always trade Forex with your spare money so that you never feel the heat. Eliminating mental stress from can significantly improve your trade executions.
3. The risk to reward ratio
Trading using a 1:2 risk to reward ratio may seem justified, but if you try to look for the good signals, then one must set a long-term goal. One should always try to find out the quality signal that can generate a 1:4 risk to reward ratio, and in this method, we can have at least one row in four trades. You should try to be a position trader instead of focusing on the lower timeframe, and newbies should try to avoid the scalping strategies as it may seem less profitable for a few investors.
4. Low leverage
To minimize the loss, the great way we find there is to use the low leverage account. Using so much leverage can be compared with the jumping of the running car where we do not have enough safety to survive. Low leverage helps you to get away from risky activities which a beginner can perform and prove as beneficial by amplifying the gain. Leverage is needed, but it should be used in a proper ratio so that it cannot bring ultimate doom to an investor.
5. Be consistent with the trend
Without being consistent with the upcoming trend, Forex trading may seem out of control. Beginners are advised to develop a habit of updating themselves with the latest political and financial news. The trend helps to understand the market condition and prepare the plan based on the news events. We all know that the market changes its swing based on social and political indicators. The more leverage we will take potential risk will increase, and for this reason, professionals advise the newbies not to use the leverage facility in a greater amount.
At the bottom line, we can say that without setting up a stop loss order and estimating the risk to reward ratio, it may be impossible to reduce your losses in the business. For this reason, amateurs must learn about the ins and outs of Forex and try to use a demo account at the beginning to be become familiar with the market.