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You can have the best forex trading system in the world, but without a solid forex risk management plan in place, you could lose everything. Risk Management is critical to a great forex trading system, and will basically answer the question: How much are you willing to put in for any one trade?

Just what is risk management? Simply put: it’s a collection of ideas offering downside protection to investors. This can include limiting your trade lot size, hedging, trading only during certain hours or days, and recognizing when to take losses.

In his popular blog “The Naked Dollar”, author Scott C. Johnston discusses how many high-profile hedge-fund managers have ruined hundred million dollar investment accounts simply because they did not protect the capital properly. You see, it really only takes one overly-confident or “cocky” trader to convince himself and others that he is “sure” of something and then put on an overly-leveraged position that leads to disaster.

The point is that there are many “good traders” in the world and many of them even get employed by major banks and investment firms like Goldman Sachs and others. However, not all of them last long enough to generate significant returns because they simply lack the mental ability to manage risk, plan for losses and execute capital preservation correctly and consistently over long periods of time. A “good trader” is not just someone who can read a chart and predict its next move, but it’s someone who knows how to manage risk and control their risk capital and market exposure and who does so consistently on