There are many ways to make money but all successful traders know that if you want to win, you need to protect what you have; Successful Forex trading is built on strong money management.
When dealing with leverage, you have to make it work for you and that means cutting your losses and running your profits. All great soccer teams have great defenses and they know that if they don’t concede points, the offense will get a chance to win the game and it’s the same at Forex.
You lose 50% and you have to earn 100%, only to break even and the moral is:
If you lose money, you have to work harder to get it back, so let’s see how to keep your equity intact.
1. All Trades Are Equal in Risk
Never make the mistake of calculating your target minus your stop as a reward for your risk! This is just an opinion and in the case of money management always consider the worst and everything can only get better. All the same trades there have the potential to lose money.
At risk per trade, you will hear a lot of people telling you that you should only take a 2% risk but on a small account you need to take more risks, also do 5-10% and also don’t diversify, do one trade at a time .
2. Trade Breakout
Breakout trading, means buying new breaks to map the highs and lows of all trades starting and continuing from this gap, a good break offers the best risk for prizes in Forex trading. Your stop, just behind the runaway point, becomes tight and at the best run, you see big movements so you have a big risk to be rewarded.
3. A Place to Stop Outside Random Volatility
The main mistake by many traders is to place a stop in random volatility and day traders do it and lose it. Why did they lose? Because all volatility in the daily time frame is random so you can flip a coin. Focus on greater trends and greater profits so that your stopping can go further but the chances of a three digit increase are higher.
To make money, you need to provide market space for breathing, so don’t try and limit the risk so much you make it – there’s no point in stopping close, if the opportunity is to be hit.
4. Do 50 – 50
This is my favorite money management trick. We all know big trends last for weeks, months or years but it is very difficult to sit on long-term trends because they always retreat back to open equity earnings and eat them. Try this, as soon as the market moves upward by buying at a 50% bull trend bank and leaving 50% in the market. Then wait for the next breakout or pullback to support, to put the other 50% back and keep on doing it.
This keeps you in trend and if you do it right, you can milk the trend for more money and reduce your core equity at the same time.
All the above Forex money management tips are easy to do and not only will they help you protect your equity, they will help you make bigger overall profits.