You must understand the risk management strategy when you face a situation where the position you take experiences a loss or floating loss. In forex transactions, it is undeniable that there are times when prices move not following the analysis you are doing, here are the strategies you can choose to deal with it.
In a defensive strategy, it means that you let your trading position be at a loss without taking any action. This can be done if you have large equity because actually no one can know how much and how long you will experience this potential loss.
This is based on the assumption that no matter how much a price moves, it will one day return to the price at which you took the trade position. Never use this if the money you have is very limited because many traders have gone bankrupt because of using this strategy.
Stop Loss, Stop Loss and Switch and Hedging Risk Management Strategy
This Stop Loss means accepting losses within a certain limit. By setting a stop-loss point, when the price moves a few pips in the opposite direction to the position you took, you quickly close it and accept the loss.
Meanwhile, Stop Loss And Switch or also known as Cut and Switch, is a strategy to accept losses as well as to open new trading positions in the hope of getting a profit that can cover the losses you experienced before.
Hedging is a technique commonly used to minimize losses. It is a locking strategy, which means that if the price moves in the opposite direction to the position you have, you will immediately open a new one that is opposite to the initial position, without closing the transaction you did before.
If you have a buy position for the first time, then you will make a new sell without closing the one you have. Traders can repeat hedging steps until the risk is minimized, but this risk management strategy must be done by professional traders, and sometimes professional traders are also reluctant to do this.
It's easier if you accept losses and try to profit from the next transaction. Learn from professional traders who play at the best forex broker so that you get valuable experience.
Doing the Averaging Strategy
Average or Averaging is to make new transactions that are exactly the same as old transactions. This is quite simple, that is, traders only need to add their position in order to get more profit. In general, there are 2 types of Averaging strategies:
1. Averaging Down, the trader adds to his position when the price moves in the opposite direction to the initial prediction.
2. Averaging Up, the trader adds to his position at a higher price, when the price moves up.
Especially in the Averaging Down, this risk management strategy requires a strong enough equity because no one knows how long the price will go against the direction you have. This can bring huge profits if in the end prices actually reverse direction according to your analysis prediction.
It should also be noted, by using this method, if the price continues to decline, then your potential loss will also be even greater. The amount of nominal profit and loss that you get from this strategy also depends on the number of lots you open for averaging at different prices.
If you want to learn more, you can join the Didimax forex broker. We provide education for free so that you can study freely. In addition, trading on our platform is guaranteed safety.
Trading requires the right strategy, including how you manage losses. You must always be prepared for this risk because always profit is impossible. Therefore, understanding the risk management strategy can help you.
