Having a clear risk management strategy is crucial for your success.
No matter how great your strategy is, if you don’t properly manage your risk, then you will end up losing money.
In this post, we go through exactly what risk management in trading is and how you can use a MT4 and MT5 indicator to help you.
What is Trading Risk Management?
Risk management in your trading is critical if you are going to make money consistently and over the long term.
Many professional traders view their trading as being able to manage their risk successfully.
When trading in the market, you are given a minimal set of rules. There are no rules on how much to trade, when to enter or exit, or how much leverage you should use.
Even with a highly profitable trading system, you will have losing trades and losing streaks.
Managing your trading risk effectively will ensure that you give your trading method a chance to be profitable after all the wins and losses have been tallied.
Some of the simple ways to manage your risk are;
- Create clear rules around how much of your account you want to risk per trade.
- Create rules around at what point you take a break on a losing streak; for example, five losing trades in a row would trigger a break.
- Only risking a small percentage of your account each trade to ensure that you give your system a chance to work out over the longer term.
- Learning how to correctly calculate your profit and loss levels.
Why is Risk Management so Important?
No matter how great your trading system or method, it will have losing streaks. This is a fact of trading.
The most consistently profitable traders understand this and take steps to minimize their losses and increase their winners.
Some of the most common risk management mistakes by traders involve getting fearful or greedy.
When a trader is greedy, they will start to risk more than they normally do. This is normally on the back of a winning streak where the trader gains increased confidence in their trading system.
Eventually, all systems will have a losing streak which can lead to being fearful.
When a trader is not using probabilities on their side, they can become fearful. The best traders understand they will have winners, losers, and breakeven trades. They factor all of this into their risk management. When they have a loss, they take it on the chin and prepare for the next trader.
When an amateur trader makes a loss or series of losses, they can become prone to making mistakes out of fear. This type of trader will now stop making the trades they know they should because they fear more losing trades.
When a fearful trader stops acting decisively, they hurt the edge of their overall system on the market by missing new potential winning trades.
Risk Management Indicator MT4
This MT4 risk manager indicator can help you quickly manage your risk within your charts.
The benefits of this indicator include;
- Easy to install and start using.
- You can quickly add it to your chart by dragging it onto any chart you want to use.
- Control your risk from within your MT4 charts.
- Can automatically remove orders.
- Can see overall account profit and loss levels.
This indicator comes with both a free and premium version. The premium has some benefits the free version does not.
You can read more about and get the risk management indicator for MT4 here.
Risk Management Indicator MT5
This is a convenient MT5 risk management expert advisor.
With this indicator, you can easily control your overall trading risk.
The benefits of this indicator include;
- Automatically stop your trading or remove orders.
- Shows up-to-date profit and loss levels over your account.
- See your profit and loss in percentage of your account or monetary value.
- Control your trading positions based on your profit or loss.
You can read more about and get the risk management indicator for MT5 here.
Note: Don’t know how to install and use these indicators? Read How to Download, Install and Use MT4 and MT5 Indicators.
Being able to manage your trading risk effectively is a key factor in your trading success.
By learning how to do things like calculating your profit and loss correctly, minimizing your losses, and letting your winners run, you will increase of chance of success in the markets.
Also, learning more advanced techniques for managing your money and risk will allow you to gain an edge over the rest of the market.