Knowing your risk tolerance is very important if you want to trade successfully. There are many ways to determine and understand HQBroker Youtube Video your risk tolerance. In the process, you will also know HQBroker Review about controlling risk exposure.
This means that you’ll be able to control the amount of risks that you will face with every trade. Doing this can help you avoid exposing yourself to more risks than your risk tolerance can take.
There are many ways to control your risk exposure. However, let’s look at the top three factors that a serious trader should consider if he or she wants to limit his exposure to market risks.
First Factor: Position Size
Different traders choose different positions sizes, depending on their goals and predictions. The position size is a very crucial part of a forex trader’s trades.
Basically, larger position sizes mean higher volatility. This spells disaster for a trader who can only endure volatility in pinches, because high volatility often feels like a straight and solid punch in the face. Even a single pip movement in the wrong direction can feel like an earthquake trying to shatter your trading goals.
Your position size can indicate higher or lower risk exposure as well as higher or lower risk tolerance. What you can do is choose a position size large enough to make you want it to succeed. But make sure it’s small enough that you won’t suffer a lot if it fails.
Second Factor: Stop Loss Orders
Stop loss orders are like your insurance in forex trading. They enable you to predetermine the amount of money you will lose in a single trade.
Now, many traders place tight stop loss to offset their large position sizes. Some adjust initial stop, while others just don’t care about stop loss orders—at all.
These are not bad ideas altogether, but they can make you lose a lot of money. You should try to place stop loss orders that can protect you from incurring huge losses, but still can reflect your trading personality.
Third Factor: Holding on for Too Long
We don’t want to sound a bit cheesy here but remember that sometimes it’s better to let go of a trade than hold on to it for something uncertain.
Sometimes, traders think that holding a position for too long can open doors of opportunities for them. What they forget about is that longer holding periods also mean larger positions sizes, which in turn mean higher volatility. And higher volatility means higher chances of losing the trade.
What you can do reduce risk exposure is to set a very well-defined time schedule for your trades, and stick to it. Holding on longer sometimes makes you more emotional, which makes you commit unwise decisions.
Control Your Risk Exposure
You have to control your risk exposure if your goal is to earn consistent earning and stay in the game longer than the next trader. Keep in mind that you shouldn’t expose yourself to more risks than what your risk tolerance can, well, tolerate.