Risk Management System:
A good technical analysis system approach most have a well defined risk management as an important aspect of it's system reliability and for better results actualization.
Technical analysis used for forex trading are ment to be effective only if they contain a risk to reward system.
Every system that is reliable has an error check part which triggers when a fault is detected to isolate the system. This is done to keep the system safe.
An error check system is needed to keep the technical analysis system complete.
The risk to reward ratio helps you to work safe using a technical analysis system that determine a trading strategy.
Most times using a trading strategy with out a good risk Management System to match the strategy will result to decline in accomplishing a better forex trading results.
An entry, stop out and exit most be considered with respect to any technical analysis system or trading strategy.
The entry point, stop out point and exit point determine a trading strategy risk to reward system.
You can not drive machine ( car,bus etc) without mechanical breaks. Also an electrical circuit is not complete without circuit breaker to protect it system from faulty signals.
So a technical analysis system is not complete without a risk Management System which defines it's risk to reward possibilities.
Every trading strategy most have a risk to reward system for better investment results.
A poor risk to reward system will lead to failed forex trading strategy results, which would have been great, only if a risk Management System is properly utilized.
It is important to know when to enter the market and exit due to faulty signals or profite target reached.
A risk Management System depends on what trading strategy is been used. A 0.1% or 0.2% risk ratio for stop out point, can work fine for some trading strategy, while others depends on the strategy structure.
Some risk management system are considered with respect to time period, pips, resistance level, support level, a swing high and swing low level point of the end of a price movement pattern.
Human or traders behavior and emotion should be considered.
Fear, indecision and greed are mostly the cause of failed trading strategy implementation.
A risk Management System for a trading strategy most be back tested and forward tested within a period of time using a Demo account. This will open up a practical understanding of the forex market trading strategy.
Risk Management System plays an important or crucial role in market technical analysis which determines a forex market trading strategy
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