Most traders think forex money management is just placing a stop and it's much more than that. Good money management can turn a losing system into a winner and mediocre system into one that makes triple digit gains.
If you want to win long term at forex trading, you need to defend what you have and keep losses small. As the old saying goes - to win you need to bet and you can't bet if you're not at the table! Obvious but true.
Most traders pay very little attention to money management - but it's the cornerstone of your forex trading strategy's success, so let's look at some tips you can incorporate in your forex trading strategy and become a winner.
Leverage
The first point to keep in mind is don't use all the leverage your broker gives you.
They will in many instances give you up to 400:1 and it's tempting to use it all however, if you do you will blow your account out the water.
A good leverage is maybe 10 - 20:1.
Trading Frequency
Cut your trading frequency back.
Most novice traders simply trade too much and take low odds trades. The good opportunities don't come around often and you need to be patient and wait for them.
I know traders who trade less than 20 times a year and make triple digit annual gains so - trade only when high odds trades present themselves.
Deciding Bet Size
How much should you risk on one trade?
Common wisdom often says 2% but for a small account this risk is so small it means 20 on 1,000 account. Well you won't make much money doing that! Risk 10 - 20% of your account equity on any single trade.
Forex trading is all about taking calculated risks at the right time and making meaningful bets - if you don't like risk don't trade forex.
Diversification
If you have a small account and a good trade and you think can make big profits, don't dilute its potential. Diversification is not guaranteed to reduce risk and in most instances dilutes gains.
Always Assume the Worst
Many traders think their risk reward is their stop minus their profit objective - but that's a trader's opinion nothing more. When entering a trade always assume the worst eventuality and from there, things can only get better!
The Biggest Mistake of Novice Traders!
In money management placing a stop is normally easy, where most traders go wrong is the way they trail it.
Most traders get so excited when they get a profit, they don't want to let it get away and they immediately move their stop up to close and get stopped out on a normal counter trend swing. The market then immediately goes back the way they thought and makes thousands and their not in!
To make the really big profits, you must accept drawdown in the short term in your open equity, to bank the big profits. Look at any forex chart and you will see that the big trends last weeks, months or in some instances years and you need to hold them as long as possible.
A good way to do this is a key moving average and we like the 40 day MA, then look for trend line support or resistance just below it. It's far enough back to keep you in the trend but close enough to protect you.
Forex money management is all about taking calculated risks at the right time.
It's a fact that most traders try so hard to avoid risk, they take too little which guarantees they lose. The above money management tips if used correctly will balance the risk reward just right and lead you to triple digit gains.
NEW! 2 X FREE ESSENTIAL TRADER PDFS
ESSENTIAL FOREX TRADING COURSE
For free 2 x trading Pdf's and more essential FREE Essential Trader PDF's and an exclusive risk free Forex trading Course visit our website.
Article Source: http://EzineArticles.com/?expert=Samuel_Leslie_Berkovits
No comments:
Post a Comment