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Simple Tips For Money Management In Forex Trading

April 4, 2010 · 4 comments

in Forex Trading

There are several different ways to earn money in Forex. However, there is just one way to lose it and that is to allow your losses get out of control. The majority of investors “surprisingly” have no clue, how to place stops and how to handle in general, equity, and as a result, they lose money. In this article, we’ll look how someone can apply correct money management in order to have sustainable profits.

When placing stops be sure that they’re behind a strong level of support or resistance, typically I would look forward to risk 50 – 100 ticks and target for a profit that is at least 2-3 times this amount.

As you can understand this kind of stop loss placement will not fit to day traders or scalpers, but this may be too risky, mainly because most daily volatility is random within this time period. The reason is that you just cannot get the odds in your favor, you may could do that in the past, prior to instant price delivery, when a few individuals had the prices ahead of everyone else, but today this is not possible.

In both swing trading and long-term trend following systems, the actual gain possibility is much better, and additionally you can get the odds in your favor and be successful.  

What percentage of your capital you should risk on each trade?

Lots of common wisdom claims 2% but with regard to the majority of traders with small accounts, this may not be an option, in order to make decent profits you could risk 5 – 10%. It’s also wise not to diversify your capital on a small to medium sized account, because all you’ll be doing is actually diluting possible profits, give attention to trades with the most odds and hit these trades, hard.

You should always keep your eyes on your own core equity, and in case you make big profits quickly, just take it – whenever my account increases in value by 20% or higher within a short time, I bank it and have a break from trading.

If you employ the above basic money management recommendations, you’ll increase the reward, minimize risk, and be more confident in your next trades.

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