Understanding Risk in Forex Trading
Updated: Mar 19, 2018
If you do not accept risk in forex trading then you should stop trading immediately. It is really that simple.
The only way to completely eliminate risk in forex trading is to not trade at all.
When a trade is opened only two possibilities exist: The market moves in your favour or the market moves against you.
Once a trade is opened there is no trading system in the world that is 100% accurate in determining what will happen, no market is which is better than another, no currency pair better than another - once a trade is opened only two possibilities exist and it is paramount that as a trader you accept this.
Fear is your enemy in forex
Your brain is designed to protect you from painful information, and it does precisely that when you are in a losing trade by suconsciously blocking any information that would have helped you to get out of the trade such as a reversal signal.
Fear also causes you to take profits too early and to enter trades too soon.
There are two ways to get around this problem.
1) Acceptance. Accept that the possibility of being wrong, losing, missing out, or leaving money on the table are fundamental to forex trading and should not cause your mental defense mechanisms to kick in and take you out of the market altogether, cause depression or prevent you from trading at all. In other words fully embrace risk
2) Switch to trading with a 1:1 risk reward ratio.