Trading without a risk management strategy is pretty much just gambling with your money. Here are a four simple tips that can help boost your profitability.
Tip #1 Don’t trade what you don’t understand
As you get experience trading in the financial markets you should start to be more selective about what you trade. Traders should avoid trading in market conditions that they don’t understand.
Tip #2 Use leverage cautiously
Leverage is a double-edged sword because it significantly increases the potential for reward AND the risk of loss. The amount of leverage you put on a trade should be in line with your acceptable level of risk. You must have strict criteria for when to use leverage. Also, when using leverage it is even more important to use a stop loss and take your profits quickly.
Tip #3 Do not trade during the release of news
Although most traders do not rely heavily on fundamental analysis, the news about a specific company or economic indicators (like job reports) can cause a jump in price volatility. How the price will react to the news is almost impossible to predict. To avoid losses in these times a good rule to follow is to stay out of the market at least five minutes before and five minutes after the release of news.
Tip #4 Do not trade with problems
Overcoming human emotions is the biggest obstacle for all traders. Trading requires 100% of your mental capacity in order to perform. If you are having issues in your personal life or finances then this can affect your ability to trade with discipline. It’s best to deal with your personal and financial problems so that you can have more peace of mind when trading.