In our life, we can’t gain anything if we are afraid to take risks. Many people are indeed afraid to take risks and as a result, they might not reach their full potential. Like if you want to swim in a swimming pool and you don’t know how to swim, getting into a pool will not be a good idea, but you can use a life jacket so that you might reduce the risk. So in all aspects of life, you will have to take risks but with proper action, you can reduce the risk level. CFD trading is a very risky profession and if you do any mistake in this market you will face consequences like losing your trading balance and once you lose your trading balance it is almost near to impossible to gather the courage and trading fund again.
By taking proper measures you can reduce the risk in CFD trading.It is a must if you want to stay alive in this market. So there are two things you need to know in the CFD market. These are are: you just need to fix a proper lot size which goes with your trading balance and a proper risk-reward ratio to get a certain amount of profit. If you can use a proper risk-reward ratio with a good lot size, blowing your trading capital will be very hard.By using a proper risk-reward ratio you may lose 55% of your trade but can still be in profits. In this article, we are going to discuss the importance of using a proper risk-reward ratio.
To control the risk per trade
We all know the Forex market is the most volatile market where the market can change its direction with the blink of an eye. No matter how good your analyzing skills are, the market will go against you sooner or later. Sometimes the market may be on your side for a certain time but if you can’t lock your profit at that time then you might not able to gain potential profit or any profit from that trade. So you just need to fix how much risk you are going to take in a trade and how much profit you want from a trade.
As you spot a signal, you might be thinking about opening that position.Use your fixed risk-reward which must have a positive value and if you can use that, you may open the position without making any further delay. As soon as you open the position put stop loss and take profit level so that you don’t miss to lock profit is the market goes in your way and also does not face losses if the market does not act like how you predict. If you do not use take profit level then the market might go to the level where you thought it would go but before clicking the close trade button market can start to go the opposite direction. The same can happen if you don’t use stop-loss then you face more loss than you wanted to and even sometimes can blow your account before closing it manually. So the risk-reward ratio helps you to control your risk per trade. You can also look here at the professional trader’s setup to get a generic idea of the risk to reward ratio.
Finding quality trades
You can find a position where you can buy or sell every hour but using a proper risk-reward ratio helps you to cluster the best trade. You might find a signal with which you are almost sure about profit. If these happen then skip that position and look for a new trade setup. You have to keep in mind about the risk of trade and should not make any silly mistakes. Because a good trader knows that following a proper risk-reward ratio lead a trader to stay in profits no matter what is his winning rate.
So follow a risk-reward ratio if you are still now following one. Because without this you will never make a career from trading no matter which market you are trading in.