f you are looking to buy a currency trading system or build one of your own, the key to the systems success will be its money management rules. There are many different ways to make money but there is a sure fire way to lose it and that's to under estimate money management. Here we will give you some facts you need to understand about money management before trading any system.

Lets look at some basic facts about money management which many new traders in particular fail to understand.

Forex Trading is a Game of Odds not Certainties

You will see a lot of currency trading systems which claim they can predict the future but this is rubbish – markets are made by humans and you simply cannot predict what they might do however because human nature remains constant, you do get high odds trading scenarios you can trade for profit.

When trading Forex you need to think like a professional poker player – while you cannot know exactly which cards might come out the deck next you can calculate the odds and if you can do that you can win, providing your losses are smaller than your profits. Now lets look at a common myth which involves the percentage of winning trades a system has is important – it's not.

The Percentage of Losing trades You Have is Irrelevant

The percentage of winning trades a system has has no bearing on the systems profit potential its the difference between the size of the losses v the size of the profits which is important. You will see lots of Forex robots claiming they can trade with over 95% accuracy but this is laughable – the best traders in the world, tend to make money winning just 30 – 50% of the time and I know of systems that lose 70% of the time but still make huge gains due to the fact, the profits of the system are far bigger than the losses.

So if building a system or following one, the number of winners v the number of losers is not relevant – its bottom line profits which are.

The Bigger the Gain the Bigger the Draw down

If you are trading to make 20% per annum the draw down will be less than if you are trading to make a 100% - with big gains comes big draw down and don't let anyone tell you otherwise. With risk goes reward, the bigger the risk the bigger the reward. If you recover draw down and make money long term but most traders find sitting on draw down hard.

Typically, if a system makes 30% per annum expect a draw down of up to 20% and if a system makes 100% the draw down at some points will be 30 - 50%

Always check Worst Peak to Valley Draw down

When following a system always assume that you joined it at the worst possible time and that means looking at the worst peak to valley draw down and then looking at the time to recovery. If you do this, you are taking a worst case scenario and can see if you are mentally prepared to take and stick with your system.

Final Words

When trading a system you must have confidence in it and be able to follow it through periods of draw down and the basic facts above will give you an idea of what to expect in terms of draw down. Money management is the the key to the success of any system but this doesn't mean you won't have losses – you will but you can see from the above, that accepting losing periods and even more losing trades than winners, doesn't mean that you can't win long term with a system you can - but you must be prepared for the reality of losses.

Learning to accept losses and following a system with discipline is one of the key traits on achieving long term currency trading success with ANY system you use.