Learn the art of risk management and have full control over your funds. Risk management is the most important aspect of trading. Having a sound money management system will make a huge difference in your profits. It will help improve your performance and minimize your losses.
Risk management is what can separate you from going broke to becoming a successful trader. Many traders do not realize there is not always a reward in the market but there is ALWAYS risk. Although profits cannot be predicted, the only factor you can control is risk.
Risk management basically deals with 3 elements:
- Choosing the size of your position (position sizing is the calculation of how many lots you should hold in a position).
- Damage control (this is the amount to risk in each trade (in USD).
- Setting your stop loss in pips away from your entry level.