After entering the market, new traders tend to become disillusioned after trading in the market for a period of time. In the final analysis, it is because there is no set of good position management rules. Here are a few simple points for you.

 

Leverage restrictions

 

Many novice investors have the problem of being too aggressive and often hold too heavy positions when trading. Once the market reverses, or dealers increase margin requirements when there are large fluctuations, or even before holidays, investors' positions may need to add margin, reduce positions, or face the risk of forced liquidation due to insufficient margin.

For example: Invest $3,000 into a trading account, and the margin for buying one lot of gold is $1,000. When the investor enters the market to buy one lot, there is only about $2,000 left for "defense space". The MT5 platform will display a 300% advance payment ratio, and generally speaking, the margin policy terms of the dealer may need to be maintained at 100% or above before the holidays. If the gold price fluctuates before the weekend close and the drop exceeds $20 (common, especially when data is released), investors may face the risk of margin calls or even forced liquidation.

Investing is not gambling. Good fund management can extend the life of trading. Set a leverage ratio, generally 10%-20%, to avoid holding too many positions. For example, with $3,000 , the margin should not exceed $600. In this way, you don't have to worry too much about trading on a tightrope.

Setting of stop-profit and stop-loss

Many traders will get nervous and leave the market when the market turns slightly when they hold a profitable order, and then they will regret missing out. In more cases, they will not admit their mistakes and exit the market when they suffer a loss, and eventually the situation will not turn around, resulting in huge losses.

It is unrealistic to dream of making all the profits or to think that the unfavorable market will end one day. Therefore, even if the foreign exchange market allows traders to enter and exit at any time with 24-hour trading, it is very important to set the take-profit and stop-loss positions for each transaction and plan before and after entering the market.

The stop loss will be adjusted according to different personal risk tolerance. It is recommended that the loss of each transaction should not exceed 5% to 10% of the current account funds.

There are two ways to exit with a profit stop. The first is a fixed profit stop. You can find the profit stop position according to different methods, such as personal expected return, trading signals, etc., and exit with a profit directly when the target is reached. The second is a trailing stop. For positions that have already made a profit on paper, you can follow the market development closely through a trailing stop to ensure that when the market suddenly reverses, the adjusted stop loss position can protect the profit of the position to a certain extent.

Undoubtedly, how to set take-profit and stop-loss is a science, which itself requires traders to practice hard for a long time.

Set profit and loss ratio

 

The profit and loss ratio is the ratio of the preset take profit and stop loss before entering the transaction, which is more important for novices. An appropriate profit and loss ratio can easily allow novices to evaluate whether the transaction is reasonable, reduce the risk of the transaction, and make the trading journey more sustainable.

For example, if an investor plans to buy one lot of gold at 1900 (USD/ounce), with a profit target of 1910 and a stop loss target of 1895, then the expected profit is 10 USD, the expected loss is 5 USD, and the profit-loss ratio is 2:1. If the expected profit is greater than the loss, it simply means that the transaction is worth investing in. On the contrary, if the profit-loss ratio is mostly 1:2 or even 1:3, it is difficult for the trading strategy to continue in the long run.

However, investors should note that the profit and loss ratio is best combined with the support and resistance levels obtained from fundamentals and technical analysis to obtain a more objective result. Otherwise, excessive wishful thinking will make the profit and loss ratio meaningless, which will neither reduce risks nor mean profitability.