A strong money management strategy is important to make sure that the account remains in good shape and in case of series of loses, it should have ability to keep on trading to cover up for its loses. The forex market was not originally meant for forex trading, rather only large brokers and banks used to trade currencies. With advancements in internet and mobile technology and introduction mini accounts has tempted even an ordinary person to get it involved in forex trading. The trader should be therefore able to understand that a small account just vanishes in this huge market in matter of minutes. A trader should set goals based on the reality keeping in mind the account size.
Before starting trading in the account, the account should be divided into reasonable number of equal parts and not risk more than one part at a time. Most preferably, the account should be divided into 10 equal parts and risk one part at a time. For example, a trader starts trading with $1000, it should consider trading $100 at a time, so the trader should devise a plan around that margin. Using a decent stop and profit limit per trade, let's say 30 pips stop and 60 pip profit limit, it can take at least 3 chances in the market. If it loses 3 trades consecutively then the consideration of using next part will come into play.
Similarly the maximum drawdown level should be defined before starting trading. Usually the traders keep 50% as maximum drawdown level and if the account reaches 50% loses of original account size, the trading is stopped. The trading is either stopped permanently or till the time a new strategy is devised and tested. Next time when the trading starts, the strategy is revised based on new starting level.
Another important aspect of money management is when to increase or decrease the number or size of the lot? The number of lot to be used should be part of strategy while testing it in demo trading. A fix lot size per amount should be fixed. For example, for every $1000, one mini lot should be traded at a time and it should stay this way until the amount reaches $2000 and then it should be increase in the same ratio, i.e. use 2 mini lots for $2000. Similarly as soon as the amount falls below $2000, the lot size should be reduced to again 1 mini lot.
Another useful tactic will be creating a "Surplus Account" from the winning trades. Once the surplus account, which could be termed as risk free account and should be handled same way as the regular account. If this strategy is followed successfully, soon all the trades will turn as bonus accounts.
If the account goes into losses, they should be managed logically and the traders should not rush into things. The normal strategy should be used as was originally planned. What is the most important thing a trader should learn is that it can hit a rough patch every now and then and like bad patches, good time will come when trader's strategy will produce winning streak. The trader should learn to survive the rough patches and that can only be done through consistently following the same strategy. Another thing that traders should always follow is that they should aim for large profits and limit their losses.
Before starting trading in the account, the account should be divided into reasonable number of equal parts and not risk more than one part at a time. Most preferably, the account should be divided into 10 equal parts and risk one part at a time. For example, a trader starts trading with $1000, it should consider trading $100 at a time, so the trader should devise a plan around that margin. Using a decent stop and profit limit per trade, let's say 30 pips stop and 60 pip profit limit, it can take at least 3 chances in the market. If it loses 3 trades consecutively then the consideration of using next part will come into play.
Similarly the maximum drawdown level should be defined before starting trading. Usually the traders keep 50% as maximum drawdown level and if the account reaches 50% loses of original account size, the trading is stopped. The trading is either stopped permanently or till the time a new strategy is devised and tested. Next time when the trading starts, the strategy is revised based on new starting level.
Another important aspect of money management is when to increase or decrease the number or size of the lot? The number of lot to be used should be part of strategy while testing it in demo trading. A fix lot size per amount should be fixed. For example, for every $1000, one mini lot should be traded at a time and it should stay this way until the amount reaches $2000 and then it should be increase in the same ratio, i.e. use 2 mini lots for $2000. Similarly as soon as the amount falls below $2000, the lot size should be reduced to again 1 mini lot.
Another useful tactic will be creating a "Surplus Account" from the winning trades. Once the surplus account, which could be termed as risk free account and should be handled same way as the regular account. If this strategy is followed successfully, soon all the trades will turn as bonus accounts.
If the account goes into losses, they should be managed logically and the traders should not rush into things. The normal strategy should be used as was originally planned. What is the most important thing a trader should learn is that it can hit a rough patch every now and then and like bad patches, good time will come when trader's strategy will produce winning streak. The trader should learn to survive the rough patches and that can only be done through consistently following the same strategy. Another thing that traders should always follow is that they should aim for large profits and limit their losses.
1 comments:
Nice,
Right, as a trader we must use money management where ever yours mood condition.
I recommend trading in armada markets. armada markets provide excellent service in the execution speed and the small spread compared to other brokers
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