Managing risk in a responsible manner is one of the most important parts of forex trading, whether you are trading live or even if you are running an automated trading strategy.

It is important to come up with a risk tolerance level for your account, which means deciding on how much money you will risk on any given trade as a function of the total amount of money in your trading account.

Money managment is just as important as having a good trading strategy, so I will outline a few rules that you can use to make sure that you are never taking on too much risk at one time.

Make sure that you always trade with a stop loss order, and when you choose where to place your stop you should check for support and resistance levels and place the stop order above or below an established support or resistance level to increase the probability that the market will not touch it.

Also it is important to trade the same number of lots for each trade, so that you do not create imbalances between the effect that winning and losing trades have on your account balance. Too many traders let their emotions control them when they are trading, namely greed, and when they see that a single lot trade is profitable they will try to scale onto that position more open lots only to find that the market quickly changes its direction and erases all of the previous gains.

Understanding your proper risk tolerance level has to do with a number of different individual factors such as your account size, your lot size and leverage ratio, and the time frame that you want to hold trades open for. Another important factor to consider is how quickly you want to try to grow your account balance and how many pips you want to earn per day, as the higher this is then the more aggressive your trading strategy will need to be.