Foreign exchange risk management: market randomness and individual behavior control

Sometimes we make mistakes and get dissatisfied with our trading status. Although many experienced traders consider themselves to be experienced in the foreign exchange field, they still fail to demonstrate the continuity they deserve. As a trading investor for a living, building confidence and maintaining dominance in trading, and taking control of the situation requires eliminating the risk factors that damage trading behavior and improving risk management and control capabilities. Today, we will explore how to manage the common risks in foreign exchange trading. This article provides a detailed analysis of the risk factors in foreign exchange trading, including the risk of large fluctuations in the market randomness and the risks caused by improper personal trading behavior, and provides practical control measures.

Although foreign exchange trading may seem risky, under closer inspection, the risk comes more from itself than from the market itself. Similar to the Swiss franc black swan event, it can still be controlled. For trading, there are no random factors that are absolutely uncontrollable in the market. The emergence of a trading failure can be traced. As derivatives traders, we trade for a living and take pride in trading. Coming to this market means that all major risks must be controlled by ourselves, not by the randomness of the market. We need to pursue relative certainty, be responsible for our funds, be responsible for ourselves, and have the courage and ability to control the big picture.

We analyze the risk of large fluctuations in the market.

There are several typical examples of significant market randomness risks. For example, the Swiss franc black swan event in January 2015, which was claimed to be the first event in 40 years, caused many traders' accounts to run out of positions, brokerage firms to close down and huge losses. The recent sharp fluctuations in class A shares and the large fluctuations in the futures market night trading are all representative of market randomness risk. Including the sudden changes in exchange rates caused by some international financial events, they have brought significant uncertainty and uncontrollability to foreign exchange, stock and futures trading.

Professional investors invest a lot of money in the market, and encounter similar huge fluctuations, all stop losses and trading strategies may fail. In the event of a black swan event, the gains of years of hard trading may be in vain.

How to avoid the risk of market randomness? As a big capital and professional trading institutions, we must avoid such things from happening and make plans. Because the randomness of the market has always existed and occurs from time to time.

First, in order to prevent the risk of foreign exchange undercutting, we should not put all the funds in one account, nor should we invest them at one time. This is a risk control step to avoid the risk of black swans and reduce the risk of undercutting caused by huge fluctuations.

Second, setting a stop loss for each trade is a necessary condition, even a large band stop loss, such as 300 points, still needs to be set. Random market fluctuations may exceed 1200 points, setting a wide range of stop losses, most of the time can still be traded, which can effectively cut off losses.

Third, the main funds and positions should try to avoid touching foreign currencies, gold, crude oil and crosses. The Swiss franc itself is a relatively foreign currency, its black swan event is not accidental, and instantaneous large fluctuations are also possible. Relatively speaking, the probability of ultra-extreme events in mainstream currency pairs such as the euro against the dollar is relatively small. Gold, crude oil and some crosses have always been known for their huge fluctuations, attracting a large number of traders. The main funds should participate cautiously, because these varieties have a higher probability of black swans.

In fact, focusing on mainstream varieties such as the euro against the dollar may be a more stable choice in foreign exchange transactions. European and American currency pairs are moderately volatile and have good liquidity. As the two most important economies in the world, their exchange rates rarely experience black swan events, and the trading rhythm and rhythm are also suitable for main capital participation. Here, it is worth mentioning that, likeAihuaThis platform, which emphasizes risk control, also provides a good trading environment for traders.

Fourth, the main capital must control the position. This is what we have repeatedly emphasized, and the position is the key factor for continuous trading. No matter the size of the capital, whether professional or not, the key to the long-term survival of foreign exchange trading lies in position control. Only with proper position management can we weather the storms and waves of the market.

Forex is a brutal market and risk control must be taken very seriously.

No matter whether you are a novice or a veteran, you need to understand a basic principle: futures and futuresforeign exchange marketIn the case of poor risk control, the proportion of those who have extremely high risk and stable profits is few and far between.

Some friends commented that looking at the profit and loss ratio of traders from a platform perspective, the one-in-a-hundred statement may be slightly exaggerated, and the proportion of those who can make a profit and exit the market may be even lower. A senior in the foreign exchange industry shared his experience and mentioned that he had never seen anyone in the industry who could continue to make profits and leave the market with dignity.

Loyalty is good for action, and the experience of experienced people must be our guide. One of the qualities that successful traders need to possess is the ability to let go of themselves and listen to criticism and advice.

No matter how brilliant we have been on the trading floor, don't forget that the foreign exchange market is very cruel, and don't underestimate the enemy at any time. Recognize yourself, is the premise of risk control.

Everyone talks about risk control, but what influences your risk control?

The foreign exchange market is also impulsive. 24-hour highly leveraged trading fully unleashes human desire and greed. This market continues to produce legends and tragedies. Some people make huge profits in a short period of time, and some people blow up their positions overnight. There are also many unknown characters who play various roles and tell you how profitable it is to follow them, which is dazzling.

Everyone has some respect for the market in their hearts, and they all know the importance of risk control. Everyone can talk about risk control, but why are they ultimately defeated by the lack of risk control?

In summary, market factors, social factors and our own shortcomings have affected our risk control concept.

The impact of market factors on risk control.

Market trends bear the brunt of risk control decisions. The risk of foreign exchange traders at the trading level mainly comes from the rapid reversal of market conditions! In a reversal, traders usually take two strategies: first, stop losses in time; second, add positions against the trend.

According to years of observation, most people lose money after the market reverses the trend. This is an iron law.

If you can stop the loss, you should stop the loss and leave the market as soon as possible.

In terms of specific trading details, the focus of risk is worth pondering. Traders who stop losses in time can backfill their accounts with losses in the near future, so we advocate the six-character formula of light positions, homeopathy, and stop losses. If you can't bear it, don't bear it. If you see something wrong, evaluate the trend and leave the market quickly. This is the really good way to trade.

If you really can't stop your losses in time, let's talk about the risk of dead weight.

Very few people can stop their losses in time every time. Or, if they can do the first 1000 times, they will always lose money once. This is the fate of traders. It is impossible for people to defeat themselves every time. If they do, they become machines.

Here, we have to say, against the trend to do risk control, it is a last resort, will be very painful. Big mistake has been cast, just accept it.

The risk of taking the risk of death occurred for the first time when the market reversed, and the quilt was about fifty or sixty points. This point is a bit embarrassing. According to common sense, the stop loss range is a bit large, which is not cost-effective. And the possibility of the price falling back also exists. Traders will hesitate here, whether to stop loss or increase their position.

Most people will choose to counter the trend when the quilt covers 50 points, which is understandable.

At this time, the key to adding a position is how much to add. Whether to double, double, triple, or 50% of the bottom position, this is a question that has torn countless people.

After adding a position, if the market continues to reverse and go out of 30 points, should you continue to add a position, cut off part of the position, or stop the loss altogether? This is also a problem.

If you continue to increase your position after 30 points, and the market continues to reverse by 100 points, the loss at this time is like a bottomless abyss, and the trader is deeply trapped. The pain and suffering in the heart is beyond the imagination of the outside world. Especially in the case of a large position.

Such a situation, such an operation, can easily lead to a large proportion of the net retracement. This is countless experience to tell us, are traders with blood and tears in exchange for lessons.

Think about it, are traders' accounts all blown up in such a scenario?

We have always stressed that the big one-sided market is the fatal injury of foreign exchange traders. For the vast majority of traders, the failure is due to the reversal of the big market.

Having experienced and witnessed countless such cases, the warning we give is that the only way to resolve it is the six words: light position, homeopathy, and stop loss. Keep these six words in mind, and if you do it, there will be no big problem.

To emphasize, what is a light position. Take $10,000 as an example, for a European, American currency pair, the total position should not exceed 0.5 lots in one direction. This means that you often need to open 0.1 and 0.2 lots to trade.

Doing this risk control can make you feel at ease and move forward and backward.

Timely stop loss, in most extreme cases, your account retracement will not exceed 3%. And the probability of profit will be very high, 22 trading days a month, I believe most people can do 15 trading days to make money. It is very likely to achieve stable gains every month.

Social factors interfere with risk control.

Impetuity and quick success are taboos in trading. Social factors can cause great emotional disturbances for traders and affect normal risk control actions. For example, many people tell you that a certain tool can bring high returns every month, and there is no risk, and it will give you a lot of profit screenshots. There are also many people who say that you can make amazing results in a year and easily earn wealth. Such success stories, whether true or false, will significantly change your profit expectations, make traders feel lonely in the invisible, increase trading frequency and positions, and activate your risk-taking cells.

The activation of the risk cell is like opening the floodgates of desire. Desire is never-ending. The madness brought by foreign exchange is not a straight-line growth, but an exponential expansion. The more you earn, the crazier you become. In the end, most people will return to their roots, liquidate their positions, and exit. The wealth earned, because there is no awe and discipline, will be returned to the market. There are too many such cases to bear to look at.

No matter the size of the capital, calm down, return to inner peace, do performance with peace of mind, maintain stable returns and small drawdowns, with time, great things will come true! Resources and applause will surround you.

The impact of self-defects on risk control.

Weaknesses in oneself usually include deficits in ability, energy, and personality. Weaknesses in ability are not the key, and trading ability may only account for a minor impact. The impact of energy is large. Lack of energy caused by bad habits can seriously deplete a trader's trading ability, which is the main problem in self-deficiency.

We often say that traders should exercise more and improve their mood by strengthening their physique. Exercise has a significant improvement in trading.

Character flaws have a great impact on risk control, but they are difficult to change. Not listening to other people's advice, being stubborn, and fighting against yourself in the market are all problems. Cultivating character often requires countless obstacles to deeply understand. At this point, character flaws are a hurdle in trading life.

Above, we analyze the occurrence of market randomness risk factors and common control measures; at the same time, we also analyze the details of risk control for individual traders in foreign exchange trading. For traders, whether they choose a platform like Aihua or pay attention to their own risk control management, the core lies in strict discipline.