The secret of a successful trader lies in the way he manages risk. Risk management is an essential factor, even for the best performing EA available in the market. Without taking a risk, a trader cannot execute trades. So, the focus of the trader should be not on avoiding risks completely. Instead, it should be on reducing the possible risk by using various strategies. Here are a few tips that can help one control the risk factor in trading:
- Size control: Size control is essential as it is the lot size that determines higher loss or profit. To have higher profits and lower losses, one can use the recommendations that are provided by the EA developers. Backtesting is also an effective method to reduce the risk as it can showcase the change in risk with the change of lot size.
- Backtesting: Backtesting is a reliable method to predict the performance of EA. It is the method of testing strategy using historical data before actually implementing it in the real trading world. But one should keep in mind that backtesting does not guarantee one’s success in the trading world.
- Diversifying the portfolio: Diversifying one’s portfolio means dividing their capital to invest in various strategies, instruments, etc. This diversification protects the trader from numerous unforeseeable situations. These unforeseeable situations include unfavorable market conditions, insolvent broker, and such others. The correlation of currency pairs should also be taken into account in order to prevent any unnecessary risk.
However, where there is trading, there is a risk. Without taking risks, a trader can never become as successful as the best way to take no risks is not to trade at all. The secret to achieving success, in the long run, is for the trader to maintain a balance between the risk and the reward. Another way is to use automated trading platforms like machinetrading to minimize the risk they are taking.
