XAUUSD Trading Money Management Styles and Methods in Gold Trading

The best way to practice successful funds management in XAUUSD trading is for a gold trader to keep losses lower and lesser than the profits they earn when trading. This is called risk : 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/greatly increase your chances of becoming profitable in the long run when trading Gold metal. The chart below shows to you how this concept works:

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

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

Never use a risk: ratio where you can lose more pips on one trade than you plan to make. It doesn't make sense to risk $1,000 dollars in order and so as 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 as a gold trader ONLY lose once you have to give back all your trading profits from the other ten winning trade transactions.

This type of investment strategy makes no sense and you'll 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 trade.

Percentage risk based method specifies that there will be a certain percentage of your trading equity balance that's at risk per trade transaction. To calculate the % per every trade, you need to know 2 things, the percent risk that you have selected and lot size of an open order so that to calculate where to put the stop loss order. Since the % 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 % = 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 gold trader with $50,000 dollars wants to calculate the annual income from his strategy

Annual income: If your 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 a pip is $1 dollars

100 transactions*12 months = 1,200 transactions

Wins & Profit

70% win: 70 % of 1,200 = 840 profitable trade 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 illustration of the amount you'll make that will depend on the risk:reward ratio of your XAUUSD trading system along with its win percent ratio.

Other factors and aspects to consider include:

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

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

Invest with 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 capital 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 and getting any form of 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 sticking to your plan rules even after you've suffered losses. Do your best to develop the level of discipline needed 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's 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 strategy of money management because you'll be using leverage to open your orders.

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

When you're placing your Gold trading orders put your stop orders in order and so as to avoid huge losses. Stop orders also can be used to lock in profits.

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

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