To Know What is Money management at Forex

Money management is without a doubt the most important and most overlooked subject in trading, chances are you already bought a trading related book and you’ll find the money management section near the end of the book, why?

Because money management it is boring subject, and lack of the “excitement” of other topics such as “How to Make Money Day In and Day Out” or “How to Double Your Money in the Foreign Currency Market” exciting isn’t?. Now, what about: “How Not to Lose Your Money Trading Forex” sound for a title? Doesn’t have the same punch, same appeal, doesn’t it? and that’s not what you want to hear from the get go, right? Be honest now.

Granted most investing/trading related book overcomplicated the money management subject but the reality is it doesn’t need to be hard concept to master, and certainly it shouldn’t have to be rocket science either.
Money management quite simple is damage control. We need to come to a simple figure, a number that we’re willing to risk losing on each trade in the worst case scenario.
This figure needs to satisfy two (2) key elements:
  1. It needs to be small enough not to cause us distress to lose and,
  2. It needs to be large enough to offer us a reasonable opportunity to profit.
By simple treating your trading activity with a business like mentality, working at archiving consistent day-to-day, week-to-week, month-to-month profitability rather than trying to strike rich on the occasional great trade. You now that one you talk to your friends, family and brag about. We are only human, don’t we?
Two good rule of thumb are:
  • Never trade with more than 10% of your total trading capital on a single day.
  • When in a trade, you should never risk to lose more than 3% of your trading balance on any given trade
Trading with these simple guidelines in place will keep you from risking too much on one single trade and thereby protect your trading capital and still keep you actively trading. It’s imperative to have a good trading method to start with, but there is no trading system that doesn’t have losses, even professional traders being right about 50% of the time yet highly profitable in their trading careers. This is possible by strict money management and avoiding excessive risk in their trading.
Think about it, if you take unnecessary risks and end up with nothing to trade with, what’s the point, right?
Adopt the following guidelines as part of your daily trading and I promise you’ll end up as a better trader… a profitable trader:
  • Never increase you risk percentage more than 3% of your trading account balance on any given trade. NEVER put yourself in the position of risking wiping out your account in one single bad trade because, believe me, it can happen. I’ve done it twice myself, just to be sure!
  • Always set an initial protective stop-loss to protect your trading capital in case your market assessment is right but market doesn’t perform as planned.
  • Make the habit of taking profit on any open trade at 20 pips gain (pay you first) while let some profit run.
  • Always trail stop your exit(s) locking some of those unrealized profits.
  • Do not let greed and fear influence you trade decisions, do your best effort to be emotionless.
  • Always have a trading plan, you MUST have one! Then you must practice sticking to it. Do not try and second guess or trade against it. Plan your trade and trade your plan.
  • Learn to sit on your hands and not trade! It’s better to wait for good quality trades than take a mediocre one and lose money. A day of no trades is better than a day with a losing one. If you don’t like what the market is doing, just walk away. It will always be there later.
  • DO NOT overtrade your account. Read our Two Years Trading Plan and our money management approach to make sure you fully understand why this is important and follow our trading strategy according to your personal trading capital.
  • Approach trading as a business. Trade to make money not the other way around.
  • Remember money management it’s a matter of damage control, nothing more.
Please – I encourage you, I challenge you – to apply this lesson to your trading. Don’t just read it, do it. Put it all together, use good money management and control your emotions. Limit your losses and run with your profits. IF, and that’s completely up to you, you do what I just share here, and combine that with what I will teach you in the near future, Then I promise you WILL generate more trading profits.I plan to add to this section later but I agree its not the most thrilling subject as I said before so lets keep it short for now.
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