The concept of money management is something that has been so heavily neglected by forex traders and trainers alike, but yet is such an INTEGRAL part of trading success.
The forex market has more potential to move against a trader more than any other market.
If a trader buys stocks and the value of the stocks depreciates, as long as he holds the stock, there is a chance that the stock’s value will bounce back and give him returns.
In forex, a position can go against you and if it continues to a level where the trader’s funds are gone and the broker’s leveraged funds are now threatened, you will be issued a margin call.
The best way to avoid this devastating scenario and manage your forex trading risk thoroughly is to UNDERSTAND how the forex market works and the factors that influence the movement of currencies.
It is an added advantage to have some experience from other markets (such as the stock market), but a trader simply has to learn how the market operates.
One thing the forex market possesses is the element of surprise.
An event like an earthquake could cause a currency’s value to go up or crash in a matter of seconds. Such natural phenomena are unforeseen.
They happen without warning, and so do the effects they have on the forex market.
Such surprise moves frequently catch traders on the wrong side of the track. To prevent this from happening, a trader needs to understand how to apply good money management techniques.
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RULES and DISCIPLINES
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1) One way to manage risk is to control emotions. Greed is a weapon of mass destruction of any forex trading account. Greed is what drives a trader to open multiple positions on several currencies.
Greed is what drives a trader to expose 20-30% of his trading capital in a single trade. The professionally accepted percentage risk a trader should expose his trading capital to must be set at 0.5% to 3% per trade. Stick to this when taking positions.
2) Avoid holding positions in two currencies that tend to move together. This means that you should not be long on the EURUSD and long on the GBPUSD. The Euro and GBP are correlated.
3) Do not take long and short positions in currencies which generally move in opposite directions. It is just the same scenario as we have above.
4) Do not increase your trade lot size to recoup losses you have just made. Such “doubling-up” techniques will not increase your chances of making a profit on the next trade.
5) You should always use a stop loss on your trades to limit your losses when a trade goes bad.
I have been receiving all your great stories and questions - keep up the great work!
Remember... KNOWLEDGE & APPLICATION is one of *the* most important elements of your ability to take MASTER your trading.
That's right, knowledge AND application.
... best thing is you can download all that "knowledge" right here on this page right now!
The forex market has more potential to move against a trader more than any other market.
If a trader buys stocks and the value of the stocks depreciates, as long as he holds the stock, there is a chance that the stock’s value will bounce back and give him returns.
In forex, a position can go against you and if it continues to a level where the trader’s funds are gone and the broker’s leveraged funds are now threatened, you will be issued a margin call.
The best way to avoid this devastating scenario and manage your forex trading risk thoroughly is to UNDERSTAND how the forex market works and the factors that influence the movement of currencies.
It is an added advantage to have some experience from other markets (such as the stock market), but a trader simply has to learn how the market operates.
One thing the forex market possesses is the element of surprise.
An event like an earthquake could cause a currency’s value to go up or crash in a matter of seconds. Such natural phenomena are unforeseen.
They happen without warning, and so do the effects they have on the forex market.
Such surprise moves frequently catch traders on the wrong side of the track. To prevent this from happening, a trader needs to understand how to apply good money management techniques.
-----------------------
RULES and DISCIPLINES
-----------------------
1) One way to manage risk is to control emotions. Greed is a weapon of mass destruction of any forex trading account. Greed is what drives a trader to open multiple positions on several currencies.
Greed is what drives a trader to expose 20-30% of his trading capital in a single trade. The professionally accepted percentage risk a trader should expose his trading capital to must be set at 0.5% to 3% per trade. Stick to this when taking positions.
2) Avoid holding positions in two currencies that tend to move together. This means that you should not be long on the EURUSD and long on the GBPUSD. The Euro and GBP are correlated.
3) Do not take long and short positions in currencies which generally move in opposite directions. It is just the same scenario as we have above.
4) Do not increase your trade lot size to recoup losses you have just made. Such “doubling-up” techniques will not increase your chances of making a profit on the next trade.
5) You should always use a stop loss on your trades to limit your losses when a trade goes bad.
I have been receiving all your great stories and questions - keep up the great work!
Remember... KNOWLEDGE & APPLICATION is one of *the* most important elements of your ability to take MASTER your trading.
That's right, knowledge AND application.
... best thing is you can download all that "knowledge" right here on this page right now!
