How To Lower The Risk Ratio
The importance of placing a stop loss cannot be emphasized enough. The percentage of margin that’s required to open a position is so small, than anyone who’s fully leveraged can lose a large amount of money with just one trade.
Thus, the key to living another day to trade is controlling risk.
With that said, it’s amazing to find people who still trade without protecting their positions with a stop. They often explain that their exposure to the market is brief.
For those who firmly believe in having a safety net when walking the high wire, the stop loss is the most important feature. To place it correctly, it’s vital to consider the size of margin required, as well as your tolerance for risk. Someone with a $100,000 may feel like handling more risk than an individual with a $1,000 Forex mini account.
Learning where to place your stop is important. Many traders utilize the money management calculator to assess their risk-reward ratios for each position. But note that the stop doesn’t have to be used in the same manner with every trade. Some of the experts who follow news releases prefer to leave ample space so that their stops aren’t triggered by a sudden market correction. Others opt for setting it within a narrow margin especially when unsure as to what the market will do next.
To learn how to use stops to increase profits, check out articles on utilizing trailing stops with Heiken-ashi.