Risk Management Tools for Forex Traders in Nigeria: How to Set Your Trades up for Maximum Profit.

In Forex, every day is a new challenge, and almost anything, from inflation, demand, and supply to economic events can turn the currency prices one way or the other before you blink an eye.   

In short, the market movement can't be controlled and anyone can sometimes take a position on the wrong side of the market move. 

As a Nigerian Forex trader, it is important to have techniques that will help you manage money while trading.

Remember, you’re trading Forex in order to make money, therefore, ensure that you do all you can to prepare for uncertainties that may arise while trading. 

What exactly are the risk management tools and styles you need to incorporate into your trading activities for maximum profit?

First off, Why Money Management?

  • Money management allows you to know how to manage your funds and how to allocate them to the various trades you want to take.
  • When done properly, it helps prevent traders from developing high blood pressure.
  • It makes your success as a forex trader predictable.
  • Good money management strategies will prevent you from overtrading.

When do you Need Money Management?

You need money management at the following periods:

  • Right from the moment you decide to start trading.
  • When you have placed a trade.
  • When you want to erase your risk.
  • As you close your trade.
  • Throughout your trading career.

Money Management Strategies You Should Incorporate into Your Forex Trading Activities

  1. Strategic Position Size Management

This is a technique that helps you determine the number of lots and the size and type of lots you should trade to achieve your desired level of risk.

It is very important that you decide on the size of the position you want to take before you enter the market.

If your trade size is too big or small, you'll either take on too much or too little risk. And risking too much can ruin a trading account quickly.

Creating a strategic position size means that you are giving a structure to your forex trading activities and you are not a gambler.

What to Note:

  • Start with your long term yearly goals.
  • Be realistic on what your long term yearly risk should be based on your aversion to risk.
  • Break these down to monthly, weekly, and daily risk/reward goals
  • Then use the risk per trade to determine your position size.

Want to read more on position sizing, Click here to read Rayner’s detailed guide to position sizing.

  1. Strategic Stop Loss and Take Profit Orders Management

A stop-loss is a money management tool designed to let your broker know how much you are willing to risk with your trade such that your trade closes automatically once it has reached the set risk level.

A take profit tells your broker how much you are willing to make as a profit with one trade such that your trade closes automatically once it has attained the set profit level.

What to Note:

  • Do not guess your Stop Loss and Take Profit Orders.
  • Let your chart analysis guide you.
  • Make adequate use of your Support-Resistance and Pivots.
  • Use your trend lines.
  • Use Price Chart Patterns and Price Action.

Want to know more about how to set your stop loss and take profit target when placing a trade? Leave a comment below and we’ll discuss that in the next article.

  1. Strategic Risk/Reward Ratio Management

The risk-reward ratio basically measures how much your potential reward is, for every dollar you risk.

For example: if you have a risk-reward ratio of 1:6, it means you’re risking $1 to potentially make $6.

What to Note:

  • Do not use guesswork to determine the ratio.
  • Be strategic and let your chart and the trend give you the clue you seek.
  • Be analytical in your approach
  • The chart if properly analyzed reveals opportunities with 1:1, 1:2, 1:1.5, etc.
  1. Strategic Time Management in Trading

Strategic Time Management is critical to the success of a Nigerian Forex trader. The market operates 24 hours a day, but you are not to trade 24 hours a day.

What to Note:

  • Budget and Plan your trading time
  • Strategic Time Management helps you deal with the problem of Over-Trading.
  • Use the football timing strategy (90minutes-120minutes) to begin with.

Your Turn: Which of these tools do you currently use and what other management tools are you aware of? Share them with us in the comment section so we can learn from your wealth of experience.