Basic Risk Management

Brother, do you know the difference between the rich and the poor? Yes exactly! Poor people avoid risk while rich people manage risk. Well, therefore belajarforex here will teach You about some simple tips in risk management or in other words how to manage risk when you trade. Here we are giving 4 kick, each described briefly in this article. A more comprehensive explanation we discussed in another article

1. CUT LOSS

Cut Loss is the Act of closing the position that is being in a State of losers to avoid more losses

NOTE THE FOLLOWING ILLUSTRATIONS:

 

Tips for you:

-Perform the CUT LOSS if after repeated analyses, prices will continue to move against your position

-If it turns out your decision in doing CUT LOSS right, means you are preventing yourself from bigger losses

-If it turns out your decision in doing WRONG, the LOSS means the CUT you've prevented ourselves in terms of reducing losses at this time (or even reach a profit)

2. SWITCHING

Practically we close our position (cut loss) that are losing money and contrary to our predictions and then open a new position to follow the price moves against the expectations, the profit position of the second bigger than the first position that already Cut Loss.

CONSIDER THE FOLLOWING ILLUSTRATION

 

TIPS FOR YOU:

- Perform SWITCHING by opening a second position as opposed to the first position only when the predictions of profits exceeds the value of losses the first position will be closed.

- If it turns out the prices change in accordance with predictions turned out first, then you will suffer harm twice, namely the first and second positions are also

3. AVERAGING

Averaging is to open a new position again with the long positions even though the current price moves opposite or in line with the belief the price will move in accordance with our predictions. Averaging taken when we are convinced that the price changes that occur will again change according the original prediction.

CONSIDER THE FOLLOWING ILLUSTRATION

 

4. CROSS HEDGING

Hedging means we are opening two opposite positions so even if prices go up or down the value of the floating remains the same so as to protect the position that (hedged: hedge)

Hedging or Locking this term is taken because as we use this dwarf our position is locked so that the value of the advantages and disadvantages are always moving hand in hand, as a result of having two mutually opposing positions.

Logically, hedging is actually not allowed because it means we play with ourselves. just imagine at the same time you do a buy position of 1 lot in the pair GBP/USD sell position of 1 lot and the pair GBP/USD. This means your profits in one of the positions is your loss on the position of the other. As for the referenced Learn forex brokers do not allow hedging. When you make a buy position of 1 lot GBP/USD pair on and then try to open a sell position on 1 lot GBP/USD pair, then this means you close the position first.

In contrast to hedging,

CROSS HEDGING means we are opening two opposite positions towards different currency pair however still grouping of the. Mean the grouping here is the trend of the second movement of a currency pair tends to be the same as: GBP/USD and EUR/USD; AUD/USD and NZD/USD. If the GBP/USD rises, then EUR/USD the appropriate join up, apply also when descending.

 

The picture above is the graph EUR/USD with a period of 1 hour (to the top) and GBP/USD with a period of 1 hour (to the bottom). According to a theory that has been presented, the movement of the EUR/USD and GBP/USD is likely to be the same.

For example we have expectations of GBP/USD will go up, then open a buy position of 1 lot, but it turns out the price moving down. To prevent losses then AirAsia opened a position sell 1 lot, but not in GBP/USD EUR/USD at malainkan which also shows the tendency of price moves down.

Then the price moves down either GBP/USD and EUR/USD. On the one hand the value floating loss GBP/USD grow, however on the other side of the floating profit value of EUR/USD is also growing.

Prices continued to move down until it began to show that the price will go back up (see picture). At the time the price will go back up, then position sell 1 lot EUR/USD closed with profit conditions. Well, and now "buy 1 lot GBP/USD, that is our first position.

Long story short, prices rise steadily until it is higher than the open price of GBP/USD buy position the (profit) and then a buy 1 lot GBP/USD is closed in profit.

 

Tips for you:

1. Cross hedging can be used to analyze and produce profits like the above case example

2. the movement of the currency pairs which are allied to not always unidirectional. Sometimes the GBP/USD is moving up, but the EUR/USD is moving down. This may occur if the GBP currencies experiencing reinforcement and EUR decline.

3. the movement of the currency pairs that are not identical to the grouping of the. That means if the GPB/USD gained 5 points, does not mean that EUR/USD is also definitely strengthened as much as 5 points.