Forex money management is simply seen as a way of restricting loses but its lot more than placing a stop, if you follow the tips in this article, you could increase your gains dramatically…
The aim of forex traders is to take risks at the right time and get the odds on their side and then get as much as the trend as they can – sure you knew that already!
However most traders think high odds trades come around all the time – they don’t.
The really great trends maybe come around a few times a month no more but how many traders try forex scalping and day trading? Lots. How many lose? All of them.
The first real rule is to get the odds on your side as much as possible and that means
Cutting your trading down – most traders simply trade too much.
Keep in mind though you don’t get paid for how often you trade you only get paid for being right with your trading signal and that’s it.
Once you cut you’re trading down, you can concentrate on hitting the opportunities you are going to trade harder.
A huge mistake is to diversify why?
It simply dilutes gains. Most traders, also have small accounts and if they take the common wisdom of risking 2%, they have to have their stop so close, their guaranteed to get stopped out.
They have a small loss – but on the other hand, they have no chance of winning.
Sure it’s the majority view to risk 2% – but the majority doesn’t win!
Risk 10 – 20% and you will stay in the trade and get some meaningful profits.
Next the most common error of all of novice forex traders is to trail their stop to close and get bumped out the trade, by normal market volatility.
If you don’t know what standard deviation of price is, make it part of your essential forex education!
Knowing how to trail a stop, outside of normal volatility is the key to huge gains.
If you trade don’t trail too quickly and if your long term forex trend following, keep your stop well back.
A good way to do this is to use key trend line support, around the 40 day Moving Average.
Sure you give a bit back at the end of the trend but you don’t know when the trend was going to end anyway so don’t try and predict – you can’t
If you look at a forex chart, the big trends last for weeks, months or years and there worth a lot of dollars in the pocket.
If you trade forex you need to take risk pure and simple. You are not trading in a manner but take calculated risks when the odds are on your side.
If you want to make 10 – 20% you can do it with less risk elsewhere.
If you want 50 – 100% you need to take risks, it’s as simple as that.
Most traders try to restrict risk so much they create it. Sure they keep their losses small but they have a lot of them and never make any decent gains.
So in forex money management terms, you need to take risks at the right time hit the high odds trades with your forex trading strategy and milk them for all there worth.
By: Kelly Price
