Effective Methods to Reduce the Loss in Trading 

Effective Methods to Reduce the Loss in Trading 

admin December 10, 2020

Effective Methods to Reduce the Loss in Trading 

Newbies who are not aware of the profession of CFD trading may think of it as challenging as it requires so much perseverance to build up a profitable trading account. Most of them do not get familiar with it easily and leave the industry due to frustration. Without taking drastic actions against emotion, the floating losses may increase, and instead of waiting for the stop-loss order, we must try to determine the risks in advance.

Steps to take to reduce the loss in trading

  • Planning

Nothing is possible without having a plan, and this is very true in trading. An investor must create a plan so that he can reduce the amount of risk involved and be prepared for bad days in advance. The aggressive decision creates mental pressure and blows up the trading account. If a retail trader is aggressive in his strategy, then it is inevitable that he will finish his career very soon. Every Forex trader should have enough financial backup for a year, and they should not be tempted to touch their savings. People should only use money they can afford to lose

  • Trading with the trend

If we do not conduct trades with the trend, then it may seem irrelevant, which may have a bad impact on our trading to make a profit. Most newbies lose money as they trade against the trend, and this happens when they do not keep themselves updated with the latest political and financial news. Once the investor learns about the market, it becomes so easy for them to adapt to the CFD trading platform. To get the best CFD trading platform, check over here to know more about the market dynamics. Be strategic with your actions and you won’t struggle hard in this business.

Beginners should learn to research and identify the trends based on fundamental and technical analysis. When they research the market based on social, political, and financial issues of the world, then it is called fundamental analysis. On the other hand, when investors take the decisions based on the graphical representation of the CFD chart, then it can be regarded as technical analysis. Scalpers take the opportunity of the technical analysis to take immediate steps in a bearish or bullish trend to reduce their risk.

  • The risk to reward ratio

Estimating it to reward ratio from the beginning can lessen the amount of damage and predict the upcoming market situation so that beginners can sharpen their trading strategies in the Forex market. According to experts, an ideal risk to reward ratio is 1:3, which indicates that to make a $3 profit, we can take the risk of a $1 loss. With the popular scalping strategy, we do not find anything wrong, but the risk ratio is so much higher here, and newbies tend to invest a larger amount of money without any prior measurement.

  • Using lower leverage

Most of the newbies do not understand the bad side of taking high leverage in the beginning, and they think it will increase their profit, but in reality higher amount of leverage can increase the possible threat in a greater amount. Rookies should keep in mind that they are investing the money which does not belong to them, but they will have to be responsible for the whole loss if they utilize so much leverage opportunity.

Therefore, we have to take the possible actions using stop profit order and stop-loss order, which most of the investors overlook. This type of tendency can make us a victim of huge damage with a sudden downtrend. For this reason, professionals suggest using a longer timeframe, which is not riskier like the scalping method, and investors can take enough time to make the right decision, which may reduce the possibility of experiencing a loss to a greater extent.