Managing risk in macro trading
|One of the weaknesses in macro trading is that you have a clear bias for a currency pair, but how do you manage risk properly?
For example, one central bank is on a rate-hiking cycle and another one is on a rate-cutting cycle. In this case, the medium-term direction of the pair is simple to predict. However, that doesn’t mean that there will not be short-term movements in the pair that are against the main medium-term direction. So how do you manage this?
Always be aware of what your risk is and use key technical levels to determine that risk. You can always re-enter at better prices, so don’t make the mistake of allowing a scenario where you are in large amounts of drawdown and have no idea about where and when you would exit the trade. This will impact your trading psychology and hinder your ability to make trading decisions.
Macro, fundamental trading is a great philosophy for trading the markets, but always make sure risk is known and managed from the start of the trade.
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