BALANCING RISK WITH REWARD IN FOREX: HOW TO BECOME A SUCCESSFUL TRADER

Risk is a permanent feature of forex trading. All traders know that profitability is the result of taking limited risk with great potential rewards, and even if many endeavors fail, we expect the ultimate tally to leave us in the black, and by a considerable margin in many cases. However, it is not true that all traders possess the necessary understanding of the relationship between risk and reward in forex. Often, a novice will have completely unfounded perceptions about the accuracy or predictive powers of analysis, and will attach much greater significance to his analytical scenarios than they merit in reality. The fact is that no trader can acquire a degree of knowledge that makes risk a negligible item in his analysis. Here we’ll discuss a few aspects of risk in forex, and offer some guidelines on how to accommodate them while trading.



Trade conservatively



The golden rule of trading is to be conservative. If you can ensure that you never lose money, even if you never aim at profits, it is highly likely that you account will be in the black eventually. On the other hand, if you constantly aim at one large profitable trade, and ignore the small losses in numerous trades, it is likely that most of the time your account will show a net loss. In shot, a successful trader is always a conservative individual when it comes to money management, although he may be a very different person in other aspects of his character.



Technical strategies should always consider the risk/reward outlook



Technical analysis spends a lot of time on determining indicators, constructing charts, and discussing price levels, but in fact much of trader’s misery would be eliminated if we could take a bit of care to ensure that our risk.reward outlook isnot random in each trade, and that basic discipline is maintained. Such an approach would help us survive many more mistakes than it would be in the opposite case.



Aim at steady growth, not at the jackpot



This is the first rule, stated in different words. In short, never aim at making it big in the forex market. The odds are high that you’ll end up a loser with this attitude. Instead aim at slow, but consistent, and low risk growth. Since you probably don’t have any extraordinary edge over the average trader (no magic indicator, no superhuman genius, or a machine-like mentality) it is better to remain calm and prudent in our interaction with the market.



Risk cannot be eliminated entirely


Risk will always be a part of trading, it has always been so. Do not trust in forex broker reviews which tell you that it is a one-way route with this or that strategy, or that forex traders are a blessed lot among humanity, privileged to take part in a massively profitable endeavor. You will create your chances, so prepare in advance, and take your risk with knowledge, so that you don’t end up being disappointed in your failure