Money Management Rules for Forex Trading (Part III). Helpful Things to Keep in Mind

Learn Forex Nitty Gritty.Live to trade another day is perhaps the best advice that you will receive in your trading career. Forex markets are brutal and unforgiving. You need to learn to survive in the markets. Discover a revolutionary new forex robot.

The single most common factor that causes many currency traders to blow up their accounts and lose all their money is greed. You start taking unnecessary risks when you get greedy. You will spend many hours trying to find the Holy Grail technical indictor or a forex robot that can make you rich. You will believe that by discovering that secret, you will become rich.

Unfortunately there is no Holy Grail in trading. You must learn not to risk more than 2% of your account on a single trade. Incrementally grow your account over time and never ever be tempted to risk big making one single winning trade that can make you rich.

You should know how much you are willing to risk in a single trade. I said 2%. But if you want to be aggressive you can go up to 5% but stay between 2-5%. Don’t exceed it. If you are conservative, on the other hand, you should consider risking between 1-2% only.

Once you have decided on the amount of risk you are willing to take, the rest is simple. Suppose you have a $50,000 account. You decide on a risk of 2% only. How much you can risk on a single trade? (50,000)(0.02)=$1,000. This is the maximum amount you should risk on a single trade.

However, if you are in more than one trade at the same time, the amount may be higher. Suppose, you are in 3 trades and you risk only $1,000 per trade. So the total amount at risk will be $3,000. Once you have determined your risk level, you are ready to determine the trade size.

Trade size is the number of contracts you purchase in any one single trade. You need to first determine where you want to put your stop loss in order to determine the trade size. Let’s use a simple example to make it clear. Suppose you are willing to risk $1000 on trading EUR/USD pair and you decide on a stop loss of 50 pips. Each pip on EUR/USD pair is equal to $10. So the number of contracts that you can trade are 2= (1,000)/ (50) (10).

Once you have determined your risk level and calculated the trade size, you have taken the guesswork out of your trading. Now, you can sleep well knowing how much of your amount is at risk and that you are going to be able to trade tomorrow, no matter what happens today.

Using these common money management rules will help you avoid the pitfall of losing almost all the money in your account. Learning to survive the markets and trade another day is the essence of trading. This can help your trading take the next level of profitability.

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