Despite the title of my article, the most important thing to understand is that any kind of speculation is always associated with risk, even investments in a Bank account have certain risks! If we are talking about the Forex market or exchange, these markets are simply surrounded by risks, especially for those who are familiar with the market through some scams, which are always easy and transparent.
Immediately it is worth noting that the risks in the market are different, the most common division:
- Market risk, that is, the risk of some market movements or market events that can lead to losses or a complete loss of invested funds, that is, any risks that you get by investing in some financial instrument.
- Non-market risk, that is the risk associated with the activities of the broker, the software and other similar factors. This risk, in turn, can also be divided into probabilistic risk and monetary risk.
It is impossible to completely eliminate the risks, otherwise I would not write this article, because you can not get away from the risks they need to be reduced, it is about the methods of reducing the risks when trading I will talk in this article.
Let’s start with non-market risk, which in Forex has a very important role and the most important risks here are:
- The risk of fraud or various frauds Forex brokers
- Risk of complete bankruptcy of a broker and total loss of funds on Deposit
The recommendation is very simple you need to have several accounts with several brokers and use the copying of transactions on these accounts. The General recommendation is to have about $ 1000 on each account, this amount usually allows you not to enter the black list of the broker and then the probability that your account will have different frauds is much less. About fraud I told in the article: Fraud and manipulation of Forex brokers to copy trades, you can use either free expert advisors that can be found on the network, or find a programmer who will write Your own Advisor, in which you can also for example embed risk Manager! You can make it a little easier to use different accounts to trade different instruments and no expert advisors are necessary. However, if you do it on 1 computer, and you have a lot of accounts, there may be “hang” and you may have to use a simple VPS server.
If you trade on the stock exchange, in this area, non-market risk almost disappears due to the strict regulation of this activity by the state first and the absence of a conflict of interest second. Forex brokers live with clients’ deposits, and stock brokers with commissions from transactions on these deposits. When a stock broker goes bankrupt, stocks, futures or options do not disappear and you will be able to get your money back unless the broker turns out to be a fraud, which is very unlikely.
But now I would like to talk about market risk and the ways to reduce it, which I know about those specific methods of entering into a transaction with the lowest possible risk.
1) Trade the emerging trend movement.
For the correct understanding of my point of view, let’s imagine such a situation, we have a schematic trend section of the movement:
In order to enter the trend down, we need a pullback movement, because only “insiders” can enter without a rollback, who know that there will be no rollback or fools who think that they know that there will be no rollback.
The entrance to the origin of the movement is a refusal to try to enter at the best price in the desire to reduce the money risk, that is, the entrance in the following way:
Red arrows — the wrong entrance; the Green arrow is the correct entry
In this situation, we worsen the entry price and at first glance seemingly increase the risk, but in fact we sharply reduce the probability risk, that is, we enter when the probability of continuing the movement is higher than the continuation of the correction. On the graph we will depict it as follows:
After all, we will never know whether it is a reversal or it is just a correction, because you can agree that the trend will unfold:
That is why it is important to wait for the beginning of a new trend wave! However, it is not enough for a good entry, read on!
2). Input on the timeframe of 2-4 orders of magnitude lower using the fractal market:
That is, seeing the trend movement on the H1 chart, it is necessary to enter the M1-M15, I wrote about the bundles of time frames here: what timeframe to choose for your strategy.
Entry to the lower TF allows you to reduce the stop loss! Entering the Junior TF is necessary to use the fractality of the market. Now our schemes are only taking into account the younger TF and fractality:
Correction on M5:
The entrances to the M5 already look like this:
Why did I mention the fractality of the market? The market is a big matryoshka and I wrote about it in the article about the fractal market: Fractal Forex or fractal analysis of the Forex market
Entering at the end of the wave “2” marked on the chart above, we do what we have already used, trying to enter the wave 3 only on the lower TF:
Due to the fact that we enter the time frame M5 and we put a stop too on the schedule M5, but the goals we are on the schedule H1 and it allows you to “relatively” reduce the risk and increase the expectation of the transaction. Just take a chart and check what difference you will have in risk, if you first enter the H1 chart and put a stop, and then the same thing on the younger TF for example M5.