In the fast-paced world of trading, it’s surprisingly easy to lose yourself in the chaos. You log into your trading platform, chase after those elusive pips, and along the way, basic risk management practices often slip your mind. Here are five simple habits that can help you manage your risk exposure better:
### 1. Check Your Orders Multiple Times
With the convenience of electronic trading, executing trades is a breeze. However, this simplicity also increases the risk of mistakes. Imagine going through the trouble of crafting a solid trading plan only to fumble the execution due to an error in entering your order. Remember 2010’s infamous “fat finger” incident? A trader accidentally sold $16 billion in future contracts instead of $16 million, leading to a financial market nosedive. The ripple effect caused others to panic sell too, resulting in a $1 trillion drop in the U.S. equity market that day. Double, triple, even quadruple-checking your orders is crucial to avoid expensive blunders. Make it a habit; it only takes a few seconds!
### 2. Have a Trading Plan
It might seem obvious, yet many traders still venture into the market without a clear plan. I’ve discussed the importance of a trade plan numerous times before, but impulsive trading prevails for many. Operating on instinct and emotions alone often ends in poor decisions. At the very least, determine when to enter and exit your trades to prevent rash emotional responses to market fluctuations.
### 3. Secure Profits from Winning Trades
A common oversight in managing risk is knowing when to take profits as a trade goes in your favor. It might be tempting to hold a full position until reaching your profit target, but reducing your position can shield you from sudden volatility. The saying, “The trend is your friend… until it ends,” rings true here. Using methods like the STA strategy or other scaling techniques, if you reduce your position partway through the trend, you’re more likely to walk away with a win, even if the trend reverses unexpectedly.
### 4. Step Back from Trading
Ever feel stuck in a trading rut? Is your analysis off more times than you’d care to admit? If so, it might be time to take a breather. A break from the market gives you the chance to detach emotionally from potential positions. It allows a fresh perspective on market trends and can even highlight past mistakes. So, resist the urge to chase pips for a bit, and you’ll likely return with renewed focus and an optimized trading plan.
### 5. Regularly Withdraw Your Profits
Watching your small account grow exponentially is a thrill, but it’s wise to withdraw profits regularly. Leaving too much capital in play can tempt you into risky decisions like oversized trades or overtrading. Unless your strategy specifically calls for increasing trade size or frequency, withdrawing funds is a solid risk management tactic. Plus, consistent profit-taking helps shift your focus from short-term gains to a sustainable process. Treat yourself to a little luxury or a getaway to enjoy the rewards of your hard work.
Incorporating these habits into your trading routine can help you manage risks better and create a more sustainable trading approach.
