XAUUSD Trading Money Management Styles and Methods in Gold Trading

The best way to practice successful funds management in XAUUSD trading is for a xauusd trader to keep losses lower than the profits they make when trading. This is called risk to reward ratio.

High Risk: Reward Ratio

This risk: reward ratio method is used to increase the profitability of an investment strategy by trading only when you have the potential to make more than 3 times what you're risking when opening a XAUUSD trade.

If you invest using a high risk reward ratio of 3:1 or more, you significantly increase your chances of becoming profitable in the long run when trading Gold metal. The chart below shows you how this concept works:

In the first example, you can see that even if you only won 50% of your Gold trade transactions, you would still make a profit of $10,000 dollars. Even if your win rate went lower to about 30% you'd still end up profitable as shown on the second example above.

Just remember that whenever you have a good risk-reward ratios, your chances of being profitable are much greater even if you have a lower win percentage.

Never use a risk: ratio where you can lose more pips on one trade than you plan to make. It does not make sense to risk $1,000 dollars in order to make only $100.

Because you have to win 10 times more to make $1,000 dollars back even if you lost only 1 trade.

If you ONLY lose once you have to give back all your profits from the other ten winning trades.

This type of investment strategy makes no sense & you will lose in the long term, guaranteed!

% Risk Method

The percentage risk method is a method where you risk the same percentage of your account equity balance per every transaction.

Percentage risk based method specifies that there will be a certain percentage of your trading equity balance that's at risk per transaction. To calculate the percentage% per every transaction, you need to know two things, the percentage risk that you've chosen & lot size of an open order so that to calculate where to put the stoploss order order. Since the percentage% is known, we shall use it to calculate the lot size of the order to be placed in the Market: this is known as position size.

Example

If you have an account balance of $50,000 in your account and risk percent% is 2%

Then 2 % is equivalent to $1,000

If three investors buy XAUUSD and the first one is using 100 pips stop loss order, second one is using 200 points stop, third one is using 250 points stop, & their position size will be:

Example 1:

Stoploss = 100 pips

Risk percent% = 2 percentage% = $1,000

100 pips = $1,000 dollars

1 point =1,000/100= $10

Example 2:

Stoploss = 200 pips

2 percent% = $1,000 dollars

200 pips = $1,000

1 point =1,000/200= $5 dollars

Example 3:

Stoploss = 250 pips

2 percent% = $1,000 dollars

250 pips = $1,000

1 point =1,000/250= $4 dollars

Example: If a xauusd trader with $50,000 dollars wants to calculate annual income from his strategy

Annual income: If your trading strategy has a win ratio of 70 % and your risk reward is 3:1, & your stop loss order is 100 pips and take-profit is 300 pips & every month you make 100 trades trading standard lots, then your maximum annual income will be about:

For 1 standard Gold lot profit per 1 pip is $1 dollars

100 transactions*12 months = 1,200 transactions

Wins & Profit

70% win: 70 % of 1,200 = 840 profitable transactions

840 transactions * 300 pips = 252, 000 pips

252,000 pips = $252,000 dollars

Losses

30 % losses: 30 % of 1200 = 360 losing transactions

360 transactions * 100 pips = 36,000 pips

36,000 pips = $36,000

Net Profit = 252,000 - 36,000 = 216,000 pips

Income: 216,000 pips = $216,000

The above is just an example of the amount you will make that will depend on the risk to reward ratio of your XAUUSD tradingtrade system along with its win percent% ratio.

Other factors to consider include:

Maximum Number of Open Position A final point to consider is the max number of open trade positions - that's the max number of trades that you as a trader want to be in at any one time. This is another factor to decide when managing your account funds.

If for example, you chose a 2 % risk management strategy per trade, you may also say chose to be in a maximum of 5 trade transactions at any given time. If all 4 of those positions close at a loss on the same day, then you would have an 8% decrease in your account equity balance that day.

Invest Sufficient Capital One of the worst mistakes that traders can make is attempting to open a trading account without sufficient funds.

The trader with limited equity will be a worried investor, always looking to minimize losses beyond point of realistic trading, but also will be oftenly taken out of transaction before realizing any success out of their trading strategy.

Exercise Discipline Discipline is the most important thing one can master to become profitable when trading gold online. Discipline is your ability to plan your work & work your plan when trading XAUUSD.

It is the ability to give a Gold trade the time to develop without hastily taking yourself out of the market simply because you are uncomfortable with risk. Discipline also is the ability to continue to stick to your trading plan rules even after you've suffered losses. Do your best to cultivate the level of discipline required to be profitable when trading Gold online.

Managing Trading Account Capital Basics

Money management is the foundation of any Gold trading system as it helps investors to get profit transacting on the online spot Gold trading market. It is especially important when transacting in the leveraged online XAUUSD market.

If you want to invest successfully in the online Gold market you should realize that it's very important to have an effective trade strategy of money management because you'll be using leverage to open your trading orders.

The difference between average profits and losses should be strictly calculated, the profit on average should be greater than the losses on average, otherwise trading Gold will not yield any profits. In this case an investor has to formulate their own trading rules; success of each person depends on their individual traits. Therefore, every investor makes his own trading strategy and formulates their own equity management, based on the above guidelines.

When you are placing your Gold trading orders put your stop orders in order to avoid huge losses. Stop orders also can be used to lock in profit.

Consider the chance to get profit against loss as 3:1 - this risk: reward ratio should be favorable more on the profit side. Considering these rules and guidelines, you can use them to improve profitability of your trading strategy & try to develop your own strategy that will possibly give you good profits.

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