10 Rules of Risk Management
Risk management is the most important aspect of any trading plan. Apart from the mathematical and strategic methodologies to employ, there are several precautions you can adopt as a trader and consider in your decision-making process.
Never risk more than you can afford to lose.
Never forget Rule no.1.
Stick to your trading plan.
Consider the costs like spread, rollover/swap and commissions.
Limit your margin use and track available margin to avoid margin calls.
Always use Take Profit and Stop Loss orders.
Never leave open positions unattended.
Record your performance and adjust as you progress.
Avoid high volatility periods like economic news releases.
Avoid making emotional decisions when trading.
We apply risk management to minimise losses if the market tide turns against us after an event. Although the temptation of realising every opportunity is there for all traders, we must know the risks of an investment in advance to ensure we can endure if things go sour. All successful traders know and accept that trading is a complex process and an extensive risk management strategy and trading plan allow us to have a sustainable income source.
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