The Importance of Risk Management Rules


As a forex trader or aspiring trader, you may have heard or read already that trading comes with risks. There are a lot of articles that list techniques on how to manage risks. However,

there are still those who may not consider that risk management is important in trading. So here are some indications of a poor risk management of an individual.

In trading, when you ignore the rules for risk management, your capital will quickly decrease once you make unprofitable trades. Also, the account will slowly grow when you closed profitable trades. The share of lucrative trades in long terms can have a tendency to be 100%.

When risk management is ridiculed, a trader will normally be found in the profitable trades’ share rathern the profitability or the risk-reward ratio, which is the most important.

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On the other hand, if trading is done with the use of risk management guides, your account will rapidly grow when trades are closed. Moreover, when trades get unprofitable, the capital slowly decreases, moderately and predictably.

There will be fluctuation in the number of lucrative and loss-making trades, where sometimes, the losing trades number is higher than the profitable ones.

Trading with really high-risk reward proportions in the majority of cases has nothing to do with trading professionally.

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The massive majority of traders result in losing their money in the forex market, or whichever market they chose to venture trading in. These majority don’t follow rules in money and risk management practices in trading. The primary tendency is a direct effect of the second one.

The capability of ignoring trades with less than 2:1 reward-risk ratio can be your prevailing competitive advantage, especially most of the trades cannot follow this principle in trading.

It is impossible to foresee the figures of transactions that are unprofitable in the future, but it is fairly real to keep your trading account from any uncertainty in the future. To be able to do this, it is adequate to follow the money and risk management guidelines and rules.

This may not assure any profit, but it offers opportunity for the investment to increase even if losing trades are greater than the lucrative ones.

It’s a personal issue of how much cash a trader will have to lose before he can truly understand the principal depending on every case. There are no traders that have a value of 0$.

At times, traders leave the business without apprehending that they don’t have to make over 50% of the money-making trades to grow their capital.

Note that you can still meet with successful traders who trade with less than 2:1 reward-risk ratio. In most scenarios, this rule is true, that if a trader doesn’t follow money and risk management guides, he will lose money. Using these rules in risk management,

Every trader can get the opportunity to be incorrect more often than being right. If the losing trade average is greater than the average profit, a trader is required to be correct than to be incorrect.