1. Trade with Stop Loss Orders
Stop loss orders are one of the most effective risk management tools (there are exceptions when data or events cause slippage. To avoid this risk, do not carry positions into new releases). Trading without stop loss orders exposes you to virtually unlimited risk, so always have a stop loss order in place for every open position, and don't move them except to protect profits. Do your analysis and risk calculations before you enter the trade, then stick to your trading plan.
2. Leverage to a Minimum
Trade position size is the definitive factor in how much financial risk you're exposed to at any time. The larger the position, the greater the risk. Don't be persuaded by high leverage ratios into taking too large a position. Keep your margins healthy and maintain an adequate cushion against routine adverse price movements. Keep your leverage to the minimum needed to trade your strategy. You can request a lower leverage ratio from most Forex broker to systematically limit your leverage utilization. Just because they offer 100:1 or 200:1 leverage doesn't mean you have to use it all.
3. Trade with a Plan
The best way to reduce the inevitable emotional reactions that occur with trading is to develop a comprehensive trading plan from entry to exit (stop loss and take profit) before you ever open a trade position. Committing yourself to having a trade plan for every strategy will also prevent you from speculating on a whim or overtrading (maintaining open positions all the time). Of course, a trading plan will only work if you use it! You stand a much better chance of sticking to a trading plan if you've drawn one up in advance and prepared to implement it. This helps eliminate some of the human risks involved in trading.
4. Stay on Top of the Market
Know the market and ensure you have a firm grasp on the Forex pair you're trading and how the market is being impacted by events. Know what data and events are scheduled in the days and weeks ahead. Consider liquidity conditions during your trade plan's time parameters. How has the market priced in and out? Anticipating conditions and events won't guarantee profits, but it will alert you to potentially disruptive circumstances and conditions that you can then factor into your trading plan to limit overall risk.
5. Trading with an Edge
The Forex market trades 24 hours a day, but that doesn't mean you have to be in it every minute. Pick your spots and choose your timing to fit your lifestyle and trading style. Trade when you're fresh and alert and most likely to succeed and stick with your predetermined plan. Analyse conditions and data and look for trade set ups with a clearly defined risk/reward scenario. Be an opportunist and spend your time and effort looking for further opportunities still to come rather than getting mired in the market move of the moment. Be prepared.
6. Step Back From the Market
It's simple human nature to be unable to gain proper perspective when heatedly embroiled in the thick of things, and with the Forex market, it is easy to allow pressure and high emotion to rob you of the patient perspective necessary to using good sound judgment. So step away periodically to gain that calm perspective. Objectivity will permit you to use discipline. Use this regular downtime as part of your trading plan. Take time off completely to clear your head and gather your trading resources. When you return to the Forex market, your head will be clear, your vision more finely tuned and you'll have a fresh and clear attitude for opportunity.
7. Take Profit Regularly
The surest way to limit risk is to regularly take your profits. If you take even a partial profit, you're reducing your vulnerability to market risk. Your trade may well have had a more lucrative profit target, but if market events play out in your favour, it pays to protect what you've gained by taking partial profits or adjusting your stop loss orders to lick in some of the gains. Perhaps the market had an artificial jump of 40 pips in your favour on data release, or the market drops back unexpectedly by 50 pips just 10 minutes later. The only sure way to assure your position is to seize profit regularly. You won't go broke taking profit.
8. Understand Forex Pair Selection
Risk varies significantly from one Forex pair to the next as factors such as volatility, data sensitivity, and liquidity, among other influences, affect the markets. Each Forex pair brings its own strengths and weaknesses and must be analyzed and assessed using different tools or strategic approaches. Various Forex pairs also carry higher or lower margin utilizations and pip values. Ensure that you understand the pair you're trading and the way it is being influenced by both fundamental and technical forces. Your trading plan must reflect the particular characteristics of the pair you choose to trade.
9. Double Check for Accuracy
Forex trading is volatile and fast paced environment, the pace magnified by electronic trading. The risk of human emotion and the pressure of this fast paced medium can cause errors in inputting trades and orders. This requires increased diligence on your part to ensure you stay calm and focused and avoid such costly errors. A stop loss order won't help if it's entered for the wrong Forex pair or the wrong amount. Make it part of your daily routine to double check every trade and order entry that you make, ideally before you submit it, but at least immediately after you make it. Mistakes happen to everyone, but only careless traders let minor errors become massive disasters. Be in charge of your trading destiny, not a victim of your own carelessness.
10. Take Money Out of Your Trading Account
Money which remains in your trading account becomes subject to future trading decisions, so it makes sense to periodically take some of your profits out of the margin account to avoid risking future loss. Keep your margin balance at a level that permits you to trade in sizes that you're comfortable with. And remember why you're trading. It isn't just about the potential profit, but how that profit can benefit your lifestyle. Withdraw your profits and spend or invest them periodically just as you would any other asset.