Forex is traded across the globe and as the currency market is open round the clock, the fluctuation and volatility is on the higher side. The forex money management is only achieved only when there is a trading plan than just trading arbitrarily. The ideal trading plan advises on which asset to buy, when to buy or sell and how one has to strictly stick to stop losses to avoid huge losses.
To trade in forex, one has to have required tools so that the quantity of capital which one is ready to take risk on is decided before the trading starts. This also means that the forex trading policy contains one from trading aggressively. The more volatile a currency pair is, lower the position should be. If you exit when the stop loss is triggered, you are using the forex money management policy else if you over-rule and don’t cut your losses, you call for trouble. It’s important to be realistic and not trade aggressively to make the quick buck.
The golden rule of trading is to run your profits and cut your losses. So if a bad trade call is made, it is important to rectify it by exiting quickly. It’s important to understand and respect leverage. The opportunity to magnify profits is offered by leveraging your position but it also magnifies the potential risk.
Traders follow fundamental factors to watch the impact of economic and geo-political situations on currency market but also actively follow technical analysis for forex money management. Technical analysis aids in determining the stop loss levels along with resistance and supports to make better decisions.
So it is important to know that once you set a risk tolerance level, you should plan your trade and then trade our plan, all this keeping in mind the pain threshold or the stop-loss. This helps in forex money management.
Read more about foreign exchange
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