Limiting Trading Risk on the Forex Singapore Market

Posted by admin 13/02/2014 Comments are off 1165 views

Forex Singapore Risks

This article looks at how you can limit risk on the forex Singapore market.

Risk on the forex Singapore market refers to the potentiality of losing trading capita.  One of the most important things one must learn when becoming a forex trader is to manage this trading risk. This will include accurately assessing the risk involved in trading strategies and systems, as well as accounting for any ‘worst case scenarios’ in trades.  This preparation must be detailed in your forex trading plan and not trading behaviour should be left to chance.

Acknowledging risk on the forex Singapore market

In order to be a successful trader you must acknowledge that all trades on the forex Singapore market include a degree of risk.  This means you must accept that there is no promise of profit on any trade executed, and as such you must understand that you can lose your capital at any point.  In fact, approximately 90% of all forex traders suffer one detrimental loss during their forex trading career.  This is why it is important you do not trade with money you cannot afford to lose.

However, while it may seem nonsensical, the best way to gain beneficial forex experience is through trading loss.  By accepting and managing losses, you will develop more effective trading strategies.  The key to making money is through learning from your mistakes; yet, this does not mean you should look for bad trades.

Assessing a trade’s level of risk should be done via a risk/reward ration comparison.  This comparison looks at whether or not the potential profits outweigh the potential losses.  The ration is calculated by dividing the amount of risk in the trade by the expected profitable outcome.  If the result is more favourable, then the trade should be executed.  It is important you always complete this calculation in order to conduct factual trades based on logic rather than emotion.

What is probability?

Arguably the most valuable measure of risk involves the concept of probability.  The forex Singapore market is highly volatile in constant flux making it difficult to predict currency movement.  In order to make speculations, one must rely on the probability of the market heading in a particular direction.

Probability is expressed in either a decimal or percentage format, with the probability of 1.00 or 100% meaning the movement will happen with complete certainty.  It should be noted that when one is completing a calculation of probability you are analysing risk via the probability of losing and not just winning.

Before executing a trade you must have knowledge of exactly how much you are willing to risk.  Understanding risk helps you make more informed and secure decisions, which lead to a greater probability of profit.  By testing your trading plan on historical market data you can review performance reports which will tell you the expectancy rate.  An average trade profit will represent the expectancy of the trading system.  This is calculated by using a division of the profit by the number of trades.

How do I limit trading risk?

There are various techniques one can use to limit trading risk.  Here are the most common methods:

  • Implement a stop loss
  • Adhere to the trading plan
  • Use appropriate position sizes
  • Use a high speed internet connection
  • Treat trading like a business
  • Use margin and leverage appropriately
  • Remember trading is no ‘get rich quick scheme’



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