There can be and are whole books written on the topic of
money management, but I like to keep things simple so I
will just give you a few simple rules that you can follow
to implement successful money management in your forex
trading.
Actually, to make it even simpler, I believe that money
management when it comes to the currency markets can really
be summed up in a nice way with just one sentence:
......(wait for it)......
Make sure that you always trade the same number of lots on
every trade that you make!
Ok, that's it, end of article. Just kidding, but if you
were to walk away and remember just that one sentence you
would probably end up making your trading more profitable
on the whole.
I will let you in on a few some other aspects of good money
management, but CONSISTENCY is a very important part that
you should never neglect.
First off, forex traders are able to take advantage of
large amounts of leverage, which greatly magnifies any
profits or losses. Because of this, doubling your trading
account balance is just as easy as completely wiping out
your account.
The first simple rule of proper forex money management is
to always fund your live trading account with RISK CAPITAL.
Simply put, risk capital is just money that you do not need
to survive or pay the bills.
When you only fund your account with risk capital, you will
feel much more emotionally detached from that money and it
will be easier for you to adhere to the rules of your
trading strategy.
Something else that many novice forex traders fall victim
to is over-trading their account. This will usually happen
in a rage after a losing series of trades, and it is very
reminiscent of a losing gambler trying to double his bets
to recoup his losses, but only ends up losing more.
The second simple rule of money management is not to
over-trade your account, and only enter the market when you
have SUFFICIENT REASON or justification for entering.
Also realize that it is pretty unrealistic to believe that
you can have winning trades 100% of the time. Losing
trades just happen sometimes, so deal with it! Because even
the best forex traders will still have losing trades
occasially, it is wise to make sure that you always trade
with a stop loss in order to minimize your losses (that is
rule #3).
But more than anything else, it is important to be
consistent in the amount of money that you place on each
trade. Do not trade 1 lot, and then later that day trade 8
lots, as this is a sure-fire indication that you are not
confident in the rate of success of your trading system.
So remember, be consistent and trade the same number of
lots each time!
----------------------------------------------------
My name is Marcus Masters, and I have gathered a large
collection of free forex ebooks and reports at
http://TheForexSurfer.com/reports . You can also learn
about my personal profitable forex trading strategy called
Forex Surfing. Just go to http://TheForexSurfer.com
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