We need to have a plan in everything we do in life, much more in Forex trading. If you refuse to recognize the importance of a trading plan or you don’t create a solid trading plan that can effectively cover the risks of the Forex market, then most likely, you won’t survive in the market.  

For you to survive in the market, you need to make sure that you have planned and crafted a risk management plan. But before anything else, you need to pinpoint the risks that you are willing to take and how you are planning to manage it if it crosses your way. Through the help of a risk management strategy, you will be able to identify and counter the risks that should have created great trouble and damage to your trading account.

To plan and craft are two of the biggest parts of survival in the Forex market. Combined with an intricate risk management strategy, you’ll become unbeatable. Right before you start trading, it is just imperative to determine your risks so you can prepare a risk management plan ahead of time.

Importance of Risk Management

Trading happens in a place with an intense atmosphere. You will be surrounded by all sorts of uncertainties and unexpected events. Unfortunately, you will never have sure information whenever you decide to trade. The events in trading are never in our hands and what we can do is speculate. When you deal with this unknown environment, you tend to easily get intimidated which results in the awakening of psychological issues. So, before something unforgivable happens, it is right to know the controlled and uncontrolled elements of trading.

Controlled Elements

Timing the Entry or Exit

In Forex trading, you have the freedom to choose your entry or exit points.

Analysis

Traders can control how thorough their analysis is.

Plan Risk/Reward

Filtering out trades that might have insufficient risk-reward ratio all depends on the trader.

Position Sizing

The trader decides the size of the position he is willing to take.

Known Economic News  Releasing Time

The schedule of such events is posted ahead of time.

Trained Psychological State

Traders have control over how prepared they should be when it comes to their mental aspect.

Setting Stops/Time to Trade

Traders have the freedom to set stop-loss orders.

Uncontrolled Elements of Trading

Condition To Trigger

Traders do not have the power to predict when all the right conditions will fall, triggering a trade. Such things could result in traders missing all the good entry points or missing a trade.

Available Information

As traders, we will always be short of significant information that will affect future trades.

Reasons For Price Volatility

Unfortunately, we will only see the price movement after it happens. This is something we cannot predict.

Unexpected News

The Forex market is full of unexpected things, including unexpected news that affects your trading positions.

Breaching Final Target

If you set trade targets, this does not guarantee that prices will be able to reach it right before your stop-loss is triggered.

Unaware

No matter how prepared you are, there will be aspects of trading that you are unaware of.

Psychological State

Humans are emotional creatures. No matter how prepared you are, when losses strike, you cannot predict the emotions that you’ll be pouring in.