Here we are going to look at some money management basics and if you think money management will take care of itself or is simply placing a stop, then you need to read this article – lets look at currency money management basics in more detail.

There are many different ways to make money but one sure fire way to lose it and that's to let losses get out of control. Many traders believe the ridiculous message, vendors of sure fire systems tell them which is – you can predict the future and trade with little or no drawdown - but this is rubbish.

Play Great Defence First

Markets cannot be predicted in advance and no matter how good you currency trading strategy – you will have losing periods where you must maintain your equity and preserve it, until the big trends come around again which will allow you to cover your losses and then, make an overall gain from these big trends. Like the great football teams, build your success from the back You know if your defence is good, you will get opportunities to score a goal and its the same in currency trading, if you hold your equity, you will get profit opportunities..

Currency Money Management Tips

Below we are going to give you some basic facts on money management which you need to understand and incorporate in your trading system.

1. When you enter any new trading signal, your stop should be set at the same time – Mental stops don't work! Most traders are tempted to hold on and wait for a loss to turn around if they do this and this, leads to disaster.

 

 

2. No trade is better than any other and you should view all trades in the same way, assume the worst first and focus on the risk NOT the potential reward. All trades have the potential to give you a loss!




 

 

3. When placing stops in the market, make sure you have an understanding of standard deviation of price and volatility. A common error most novice traders make is to place stops within the market noise and this guarantees they get stopped out – it looks like they have low risk but they actually have created risk, by guaranteeing their going to get stopped out. When placing and trailing stops, give the market room to breathe and keep your stops outside of random volatility.




 

 

4. You need to decide how much you wish to risk when you start trading per trade and 2% is a common figure quoted which is fine for large accounts but for smaller accounts, of say $5,000 or less, you will need to risk 5 – 10%, to make meaningful gains.





 

 

5. A lot of people will tell you that diversification is a good idea and on larger accounts it can reduce risk but smaller accounts, don't have enough money to do this so focus on the best trade only.




 

 

6. Monitor the risk of the trade at the current time and NOT from where you entered the trade, markets are in a constant state of flux – so make sure you evaluate risk daily.




 

 

7. Monitor the overall performance of your account as well as each individual trade and make sure that above all else you preserve equity. For example, if you make a lot of money in a short period of time take it, have a break and start again. On the other hand, if you are losing scale back position sizes or take a break from trading.





 

 

8. Always keep your focus on the WORST that can happen and don't hope or predict; as soon as you place money in the market, you are at risk until its taken out. Always trade the truth and the reality of what you see, rather than what you hope it might be. Be disciplined and keep your losses small and the profits, will take care of themselves.

Final Words

Picking trend direction is easy for many traders but knowing where to place a stop, trail it and take profit, in light of market volatility is a major challenge all currency traders face..

There are many traders with good trading strategies but they fail to make money with them because they have poor money management. If you don't employ objective money management rules which you can follow with discipline, you will join the 95% of losers its as simple as that.