Managing your risk

• There are three basic questions that every trader should answer
BEFORE entering a trade.
1. How much do I believe the market will move and where do
I want to take my profit?
Limit Orders allow traders to exit the market at profit targets.
If you are short (sold) the system will only allow you to place a
Limit Order below the current market price because this is the
profit zone. Similarly, if you are long (bought) the system will
only allow you to place a limit order above the current market
price. Limit orders help create a disciplined trading
methodology and enables traders to walk away from the
computer without constantly monitoring the market

2. How much am I willing to lose before I exit the position?
A Stop top/Loss /order allows traders to set an exit point for a
losing trade. If you are short a currency pair the stop loss ord order er
should be placed above the current market price. If you are
long in the currency pair pair, the stop loss order should be placed
below the current market price. Stop/Loss orders help traders
control risk by capping losses. Stop/Loss orders are counter counter-
intuitive because you do not want them to be hit; however,
you will be happy that you placed them! When logic dictates,
you can control greed

3. Where should I place my stop and limit orders?
As a general rule of thumb traders should set Stop Orders closer to the opening price than limit orders. If this rule is followed, a trader needs to be right less than 50% of the time
to be profitable. For example, a trader that uses a 30 pip Stop/Loss and 100 pip limit orders needs only to be right 1/3 of the time to make a profit. Where the trader places the stop
and limit it will depend on how risk risk-adverse he/she is. Stop/Loss orders should not be so tight that normal market volatility knocks the position out. Similarly, Limit Orders
should reflect realistic expectation of gains given the markets trading activity and the length of time one wants to hold the position.