Risk management is the backbone of successful portfolio trading. The risk you take when placing a trade is directly related to the reward you would like to receive. As your risk increases, the rewards you expect to receive can also increase, and finding the optimal risk capital will be tantamount to creating a successful trading strategy.
Risk refers to the potential for loss of capital. If you buy a currency pair or a commodity, you run the risk of incurring losses. The loss itself is not a risk; instead, the possibility of loss is a risk. There are a number of risk control techniques, and the amount you place in a trade is one of them. To achieve the optimal portfolio, investors may need to determine the most efficient amount of capital to use when making an investment decision. There are a number of strategies you can use to determine the best investment size.
Why is the Martingale strategy dangerous?
A key component of determining your risk is clearly defining how much you are willing to lose based on your portfolio. One school of thought dictates that if you're willing to risk only 20% of your portfolio, don't expect to get more than that. A strategy where you can lose all the money in your portfolio is a dangerous strategy and should be avoided.
Martingale betting strategy
One of the strategies is known as the Martingale strategy. This type of system is based on the idea that you will double your bet after losing trades, and in theory, you will always cover your losses with winning bets that are double the amount of your losing bet. The strategy is intended for systems in which the chance of winning is equal to the chance of losing.
There are a number of significant risks that an investor can face when using the Martingale strategy when trading Forex. One of the problems with forex price movements is that they usually consolidate and then trend. While currency pairs usually only tremble about 30% of the time, if you catch on the wrong side of a bet during a market trend, a martingale strategy can create a risk of ruin.
