Ten Forex Money Management Strategies
The process below describes the process of formulating money management and practical advices on formulating your own money management system in Currency Trading.
1. Keep the Necessary reserve (over and above the broker margin requirement)
This reserve is needed for unusual situations and it should be not less than 50% of invested equity. It is the first rule of margin definition for opening orders. However, many experts and analysts advice more reserve of about 70%-90% of invested capital for safe operation in trading.
2. Do not to invest more than 2%-6%
This is one of the principle that helps to avoid bankruptcy: never invest more that 2% on one market and do not to invest more than 6% in the total open trades.
3. Never risk a loss of more than 2% of invested money on any single trade
This is not the same as above, the above is never invest more than 5% , this is never to lose more than 2% on a single trade. In this case a trader risks only lose small part of his equity with an unprofitable order.
The use optimal investment of your funds is that you should diversify to some degree. Just In case one trade losses, the order can be covered by profits of another trade.
5. Money management rules should be well written down
On a piece of paper or better still in your trading plan. If you open orders on this orders should be within your money management guidelines.
6. Define your stop loss and take profit levels
When you are trading put your stop orders in order to avoid any huge losses or even bankruptcy. Profit taking levels will ensure you get additional profit by taking money out of the market. analyze the situation and predict the future movement of price action and place orders accordingly. You can even use indicators and volatility of the currency pair to know where to place these orders.
7. Define of possible loss or profit before executing a trade
Consider only opening trades when you have the chance to get profit against loss ratio of 3:1. If you cannot do it then don't open the order.
Money management should seek to bring maximum profit to the traders account, keeping profitable orders as long as possible is a good strategy. Therefore, if you make some profitable orders you can have goods results.
8. Try to follow the rules of opening and closing the orders specified in your plan.
That way you will get consistent trading results required for making profits in the currency market.
9. Do not revenge against the Forex market
In this case, you will not be analyzing the situation but you will just be trading based on emotions and you will lose more money.
10. Timely rest
Do not trade when you are exhausted, no matter how tempting the situation may seem, you might not get the profits that you can if you were to trade based on your trading schedule.
Considering these rules and guidelines can make you trade profitably. try to develop your own money management strategy that gives you good profits.