Money Management: What Are The Rules of Proper Risk Control?
So you want to know what it takes to be a good trader.
Amazingly most traders do not have a single clue when it comes to the Money Management rules. Not surprisingly, most of them will end up losing their whole account in matter of days. I was one of them too, until I found the real cause of all my problems.
I knew that trading was no rocket science but still I could not make a decent profit on the market. This is until I stumble upon one crucial part of my trading that I was always neglecting, my Money management rules. Once I started following those simple rules that are outlined below, my trading took a dramatic change.
Forex over the past few years has attracted a lot of new comers to this market. This major interest in the foreign exchange market has been driven by the massive amount of money someone can potentially make trading the Fx market. This desire to make money within a click of a button has been a major trigger to get so many people interested in forex. However, due to the fact that most new comers are blind folded by the amount of money to be made, they forget the one crucial thing every professional traders follow. The money management rule.
Money management is in other words the back bone of your trading. Having well thought rules and sticking to them will help you stay in the FX arena for longer. Bear in mind that trading is to some extent a game of probability, a reason why to have a good money management rule in place.
So to make your life easier here are the main rules that you should follow in order to survive the forex market.
* Risk only 1-2% of your total account per day. (You will thank me for that)
* Always use a trading lot that suits your account. I would highly recommend trading with less than 1/10th of your account size.
* Take partial profit each time you reach an area of heavy support/resistance. Once this is done bring your Stop Loss to Break-Even thus protecting you from any unpleasant surprises.
* Take partial profit each time you reach a certain level of major resistance/support and bring your Stop Loss to Break-Even.
However simple those rules are, those new to trading always tend to forget about them. Applying those rules accordingly will without any doubt minimize the risk and alternatively help you stay in the game long enough to profit from the market.
The table below will help you have a clearer idea of lots sizes:
1 Lot = 100.000 Units of a currency. Pip value = 10 Dollar
0.1 Lot = 10.000 Units of a currency. Pip value = 1 Dollar
0.01 Lot = 1.000 Units of a currency. Pip value = 0.1 Dollar
Thus, having an account size of $10000 and risking only 2% per day implies that you are ready to lose $200 on any given day. Depending on the amount of pip you are risking you will pick the appropriate lot size. - 23226
Amazingly most traders do not have a single clue when it comes to the Money Management rules. Not surprisingly, most of them will end up losing their whole account in matter of days. I was one of them too, until I found the real cause of all my problems.
I knew that trading was no rocket science but still I could not make a decent profit on the market. This is until I stumble upon one crucial part of my trading that I was always neglecting, my Money management rules. Once I started following those simple rules that are outlined below, my trading took a dramatic change.
Forex over the past few years has attracted a lot of new comers to this market. This major interest in the foreign exchange market has been driven by the massive amount of money someone can potentially make trading the Fx market. This desire to make money within a click of a button has been a major trigger to get so many people interested in forex. However, due to the fact that most new comers are blind folded by the amount of money to be made, they forget the one crucial thing every professional traders follow. The money management rule.
Money management is in other words the back bone of your trading. Having well thought rules and sticking to them will help you stay in the FX arena for longer. Bear in mind that trading is to some extent a game of probability, a reason why to have a good money management rule in place.
So to make your life easier here are the main rules that you should follow in order to survive the forex market.
* Risk only 1-2% of your total account per day. (You will thank me for that)
* Always use a trading lot that suits your account. I would highly recommend trading with less than 1/10th of your account size.
* Take partial profit each time you reach an area of heavy support/resistance. Once this is done bring your Stop Loss to Break-Even thus protecting you from any unpleasant surprises.
* Take partial profit each time you reach a certain level of major resistance/support and bring your Stop Loss to Break-Even.
However simple those rules are, those new to trading always tend to forget about them. Applying those rules accordingly will without any doubt minimize the risk and alternatively help you stay in the game long enough to profit from the market.
The table below will help you have a clearer idea of lots sizes:
1 Lot = 100.000 Units of a currency. Pip value = 10 Dollar
0.1 Lot = 10.000 Units of a currency. Pip value = 1 Dollar
0.01 Lot = 1.000 Units of a currency. Pip value = 0.1 Dollar
Thus, having an account size of $10000 and risking only 2% per day implies that you are ready to lose $200 on any given day. Depending on the amount of pip you are risking you will pick the appropriate lot size. - 23226
About the Author:
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posted by X - Men @ 1:00 AM
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