Remember the idiom Like a Bird on a Wire, which received much popularity due to the movie and soundtrack? Alot of people have different interpretations of this and it can be construed in many ways but lets explore this and what it has to do with forex trading
The proverbial bird on the wire stays perched precariously on the wire, however one move either way or sharp movement could set the bird into free fall. Similarly if another bird were to be perched close by this endangers the birds position even more.
Forex trading and balancing the positions could be thought of in a similar manner. You want to use a solid risk management strategy so that sharp moves does not tip you over, and result in a severely drawn down account or a complete loss.
It is in my opinion the most important lesson to learn, and it is a continual learning curve. The factors of risk management rely upon the social, mental, emotional and psychological aspects of the trader. As these are always dynamic in nature, the trader should always follow a discipline by setting out the rules…..and more importantly stick to them!
Here are some strategies I believe that can help in setting out these rules
- Have a defined set of rules for take profits
- Similarly, if using a stop loss, ensure you stick to it, or have a mental line in the sand of where to take action
- Always allow your account to breathe, when using margin trading I personally do not allow my account to move to below a 1000 % margin. To me, it is at this level , that my account could be in the danger zone and not be able to withhold any wild fluctuations
Always remember that when you have money in your account , the next trade will come , this is the beauty of Forex, the next great trade is around the corner, so wait it out, be in the best position to trade the markets and have a calm and stable mindset.
Forever keep the bird in mind !