Importance of Risk Management

Risk management is the cornerstone of successful forex trading. It protects your capital and ensures long-term profitability by controlling potential losses.

Position Sizing

Never risk more than 1-2% of your account balance on a single trade. This rule helps preserve capital during losing streaks and allows for recovery.

Stop Loss Orders

Stop losses automatically close positions at predetermined price levels to limit losses. They should be placed based on technical analysis, not arbitrary amounts.

Risk-Reward Ratio

Aim for a minimum 1:2 risk-reward ratio, meaning potential profit should be at least twice the potential loss. This improves overall profitability even with a 50% win rate.

Diversification

Don't put all your capital into a single currency pair or trade. Diversify across different pairs and timeframes to reduce overall risk.

Emotional Control

Stick to your risk management rules even during emotional periods. Avoid revenge trading and overtrading after losses.