How do you guarantee you won’t have a big loss?

That’s easy.

First you determine where the market has to go to to PROVE to you that your buy or sell trade is likely to be wrong. I typically use the previous swing low for buys and swing high for sells plus a few pip padding so noise doesn’t knock you out and you miss the resulting profitable move. With the TopGun Software myself and my partner have created our systems are typically 60 to 80% winning however as I said above you don’t have to have such a high win rate. A high win rate system will however allow you to use smaller stops (10-12 pip stops are our maximum for most USD pairs).

The next stop is to decide how much in % terms you are willing to risk per trade.

Risking 2% per trade is a good base line

This way you can have 5 losses in a row which rarely if ever happens if you know how to trade Forex but does occasionally happen.

ADVANCED TRADERS ONLY NOTE

If you are a profitable and experienced trader you will likely have different trading styles, methods, and strategies. Some may work 50% of the time while others don’t occur too often but when they do are 80-100% winning. For advanced traders only I recommend they risk more on the super high winning % trades that also often have much bigger pip gains than other systems.

So for example if your normal systems are 40 to 60% winning but one only finds a few trades per week but is usually 80% winning and gives you huge wins, say 30 to 50+ pips on average I recommend to INCREASE your trading size. I will increase the size on my trades 30 to 100%. This can have dramatic impact on your AVG WIN size which I’ll explain later and how it impacts your NET PROFITABILITY!

Once you’ve made the above 2 DECISIONS you can then decide how many Forex lots to trade. A mini lot is $10k and a full lot is $100k of currency and a mini lot is worth $1 per pip while a full lot is worth $10 per pip of price movement.

Number of lots to trade = ( Account Size X Risk % per trade ) / ( Stop in pips * Value per pip )

So for example you have a $5,000 account and are risking 2% on this trade where you are having a 10 pip stop and are trading mini lots ($1 per pip)

$5,000 x .02 = 100. You can only lose $100 on this trade which would be 2% of your account.

Then simply take the 100 and divide by your 10 pip stop * $1 per pip = 10 which results in 10. You can trade 10 mini lots in this trade which is the equivalent to 1 full lot.

If you were a full lot trader you take ($5,000 x .02) / (10 * 10) and the result would be 1 lot!

Simple!

Now this is only the beginning. In order to be profitable you should have 50% bigger average wins than losses! This means that if on average you lose $100 when wrong you should be making $150 on average in your winning trades.

In both my experience and in watching the accounts of my close to 2,000 traders I’ve found that big wins (30-50+ pips) happen 10 to 20% of the time for most of us. This means that often times our wins are 5, 10, 15, or 20 pips. The huge 30-50+ pip wins just increase our average win amount even more.

The profitability formula is Number of trades X winning % X average win amount in dollars minus Number of trades X losing % X average loss amount in dollars.

So there are a few things you can do to MAXIMIZE how much you make trading Forex. First obviously increase your winning percentage but also do whatever you can to reduce your losses. We teach our traders to move their stops to BREAK EVEN once the market moves 10-12 pips their way. This does slightly lower winning % but also DRAMATICALLY reduces the average loss in dollars! It’s one of the secrets to trading that you will rarely read in books and I have many 40% winning traders that make a good income trading Forex because they have so few losses, just break evens on most trades that don’t work!

You should also AVOID trades that are NOT likely to make you 50% more than you risk. For example, if you see 2 or 3 major resistance points 5 pips above current price and you are using a 10 pip stop DO NOT TAKE THE TRADE! If you are “likely” to only make 5 pips while risking 10 this is a recipe for disaster when trading currencies. Don’t do it, EVER!

If on the other hand the next resistance area is 30 pips away and you have a 10 pip stop and trade is 50 to 60%+ likely to work you HAVE to take the trade because those 20-30 pip wins will increase your average winning trade. That’s another reason above why I told you to increase your trade size on trades you feel have a 80-100% chance of working or are more likely to give you huge gains.

The article discusses the VERY MINIMUM you must 100% understand in order to make money trading the Forex.

If you would like to come to a week of our Forex Training Classes free or get our software that has many 60 to 80% winning Forex Systems please visit LeverageFX.com

Chris Donnell
LeverageFX
800-439-9125
Forex Software & Broker

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If you have $5000 you want to start investing in the forex market, you’re going to have to decide what kind of account you’re going to get to hold onto your money. You can start with the mini accounts which are for new people, or you can get a standard account. The best to start with is the mini account because you can make much smaller trades, instead of doing the larger ones the professionals do.

Before you start making trades, it’s time to decide how much you could risk losing, rather than how much you’re going to potentially invest. If you’re starting with $5000, try doing 10%. That means you would be perfectly fine financially if you lost $500. Make sure you’re okay with that. If not, you shouldn’t be in this business. This means you’re going to trade with $500 this month. There’s no need to risk more money at this point.

Now the next skill you need to develop is assessing the risk per trade. This allows you to gauge the probability that you’re going to win or lose with this particular trade. For this you’re going to need a piece of software, like Forex Killer. All you have to do is input the data feed of a particular currency and it can let you know if it is risky or not. It can also calculate rate of return as well, as it is an automated software. With this tool you won’t be risking anything that could potentially lose more than 5% of your money. You just set up the software to sell at specific points and you’re home free.

These skills will help you manage your money much better with forex trades. Remember that you need to be cool calm and calculating. If you start risking more money because you have a “feeling” about something, you’re bound to lose out.

The skills are important to win at forex, but Forex Killer is just as important. Check it out now at Forex Charting Software.

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This type of money management strategy is practiced in gambling where the systems or the games are negative expectancy. No type of money management can change the odds of the game or change the expectancy of the system. A simple example is a coin flip.

You can bet on heads or tails. If you win you win 1$ and if you lose, you lose 2$. This is negative expectancy. If after 100 flips, you have 60 heads and 40 tails, you will win 60$ and lose 80$ netting a loss of 20$.

Although you won 60% of the times, your wins were half the size of your losses. However, by practicing martingale, you can increase your bet size after every loss to 2$ to win 2$, in this case if a streak of wins start, you can manage to come up as a break even player.

This type of money management is highly dependent on streak of consecutive wins. Classically, the gamblers or traders try to take advantage of the streaks in the game. However, this is not going to change the negative expectation of the game. Any losing streak lasting for long enough will chew up the capital.

The theory behind doubling of size of the bet is that eventually the losing streak has to come to an end. I do not recommend this method of money management in forex, stocks, options or any other type of trading. The risks are too great and there is a good chance that 4-6 or more losing trades will ruin the account.

There are other better money management techniques which are antimartingale in nature. This will be discussed further in my other articles on money management techniques here on EzineArticles.

Adnan Kaleemi is a Registered Commodity Trading Advisor and has been advising Forex traders all over the world in more than 60 countries for the last five years. He is currently registered with the commodity and futures trading commission in the US. He reaches global forex traders where he provides daily forex signals and forecasts in the major currency pairs EURUSD,GBPUSD,USDJPY and USDCHF along with money management strategies At http://www.forexforecasting.com you will find informative articles, newsletters and other tools which will help transform your Forex Trading.

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How to Apply Money Management

I believe the best way to learn new things is by practicing and examples. Let us assume that you have a capital of $1,000 (One thousand U.S. dollars) in your forex trading account. You need to set certain rules and apply them to your trading, those rules are:

Size Per Trade

You must put a rule for yourself, for your lifetime trading which is size per trade. How? You need to ask yourself, how many U.S. dollars you are going to use per trade? and how many trades can be left open at a single time? Enough questions, let me answer you.

A $100 trade would possibly have a $1 pip value, trading with leverage of 100:1. So never trade more than 10% of your entire forex account at a time. I am serious about this, all your open trades combined should not exceed 10% of your account. So in our case, you can trade a maximum of $100 from your $1000 at the same time (All Your Trades Combined).

But be careful, if you have a bigger leverage (more than 100:1) with your broker, you need to take down the trade value. Try to keep the total pip value for all trades near $1 or less for a $1,000 account. This step is very serious and trust me it is going to help you in your new forex journey.

Risk Per Trade

This step is mandatory. You must know how much loss or gain you are going to accept. Otherwise, your trade could just loss forever, until all your money is gone! So do not do this mistake, it is very very common. Planning is key to success, plan everything before you start. Oh, show me example please. OK!

Let us say I have $1000, and I bought (longed) Euro/Dollar at 1.5000 rate, the trade is worth $100, and the pip is worth $1. I decided to take a Gain:Loss ratio of 1.5:1. So If I put my stoploss at 1.4950, my TakeProfit would be at 1.5075. Risk (What I can afford to loss) is 50 pips or $50. (5% of your account which is an average for many trades. Some traders even risk 2% only though.) Gain is 75 pips (1.5 X 50) or $75.

Basically that above example shows you how to apply money management rules to your stoploss and takeprofit levels. But now I have some important and real important notes for you.

Important Notes

A. You must plan your trade, put your take profit and your stop loss. B. The above example risks 5% of your account per trade. But many trades risk only 2% per trade. Just do not over risk your capital. C. Leverage heavily modify money management parameters. I highly recommend avoiding any broker with a leverage higher than 100:1. D. The Gain:Loss ratio will be different from a trader to another. In plain words, it is the ratio which controls how much you are willing to risk, to make a certain gain. Your gain ratio should exceed your loss ratio but to be honest it depends on your technique and which system you are using. I will talk about that in later articles.

A Word for New Traders

If you have a technique with 50% accuracy. Yes, only 50% accuracy and a Gain/Loss ratio of 2:1. That means you are making profits on the long run. In theory, things are simple but to do this practical, you need to be a restrict person about your trading experience. Some people have no discipline at all and you can’t blame me for that.

Okay good. Now what we’ve learnt together in this article?

1. Never risk more than 10% of your account per all open trades. 2. Plan your trade, stoploss, and take profit levels. 3. Never! Never risk more than 2-5% of your account per all open trades. 4. According to your system, your gain ratio should well exceed your loss ratio.

Article by Ahmed Fouad, BlogForex.info [http://blogforex.info]. Forex web log with news, commentary, and education center.

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In case you risk too much, you are going to lose a large percentage of your trading account. Now, you will risk more and try to recover the lost amount and in the end you will lose all your account. There is another form of failure that you should beware of. You were able to grow your account 20% every year. Apparently, you may look like a successful investor. But, if you had a good money management plan with you, you could have made 40% or even more in a year. So what do you say was it your success or failure?

You should know before each trade how much is truly at risk in a single trade? Many traders misunderstand this and don’t know their risk. Suppose you have a $10,000 account and you buy one lot of EUR/USD. Your Forex broker will set aside $1,000 in your account as a margin, so how much of your money is at risk? Many would say only $1000 but they are wrong. You have $9,000 to trade, $1000 was for margin. So your risk is $9,000 and you could lose up to this much before you receive a margin call from your broker.

A margin call is an order when your dealer automatically takes you out of the trade once you have lost $9,000 and only $1000 is remaining. Once you get the margin call, it means you are out of the trade. How could you lose $9,000 in a single trade?

Each pip on a EUR/USD contract will cost $10. So you need to lose 900 pips (900*10=9000) in order to lose $9,000. Many would say what about the stop loss. You are right! You don’t need to risk your whole account on a single trade and trade without a stop loss. You can use stop losses to protect your position in case the trade goes wrong. You could put a stop loss at 100 pips losing $1000 only. You could put a 50 pips stop loss losing only $500.

No matter where you set the stop loss, the amount of money that you set aside with your broker as margin does not tell you anything about the risk unless you plan to get a margin call. Understanding these common money management pitfalls will help you a lot. Unless, you do not develop your own money management rules, you will most likely fall into one or more of these pitfalls.

Investors who enjoy the greatest amount of success in their trading are those who have clearly established money management rules that govern their trading. Those rules are:

1) Live to trade another day, 2) Knowing how much to risk and 3) Knowing how to determine the trade size.

You should read Part III of this article where I explain these three rules in more detail.

Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading and swing trading stocks and currencies. Discover a revolutionary Forex Robot Trading System. 1500 Pips in 1 day-Try Strignano’s Forex Signals free for two weeks!

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The important question is how you can improve your investment results by making small changes to your trading strategies. Proper money management can be the difference between becoming a successful Forex trader in the long run or an unsuccessful one who decimates his/her account in a few weeks.

Have you ever played poker or watched it being played online or on TV! If you have, then you will never see good poker players play all their cards on a single bet. Good poker players know that by risking only a small amount of their money on a single bet, they can win or lose but will still play the next hand. If they put everything on the table on a single bet, they will have to be 100% sure of winning, an impossible thing. You can never be 100% sure. Life is the game of probabilities.

You must know this that currency trading is far more complicated as compared to playing poker. You will be dealing with hundreds and hundreds of variables that can affect the markets. What to talk of only 52 cards. You must understand and implement good money management rules in order to succeed at Forex trading in the long run.

You can fall into many pitfalls while trading. As a trader you should constantly guard against two emotions. Greed and fear! In case you are on a winning streak, you will become greedy. You would want to risk more to make one big win and you would want to strike it rich in one or two big trades. This will make you risk more and more of your money on a single big trade.

When you lose a trade, you become afraid to risk enough of your money on the next trade. Fear takes over and impairs your decision making, making you lose confidence in your judgment and decision making. Let’s see how fear and greed can play havoc with your trading.

Let’s assume you have a run of successful trades. You become overconfident. You are not satisfied by risking only 2% of your equity on a single trade. You want to risk more on the trade because the more you have in a trade, the more you will make if you are right. You increase your risk to 5%. You win. You increase it further to 10%. You again win. Now, you finally decide to put 25% of your equity at risk on the next trade. Misfortune strikes, your successful run comes to an end. You lose.

Assume you had a $100,000 trading account. You had foolishly risked 25% or $25,000 on one trade that you desperately wanted to win. Losing $25,000 means you have only $75,000 in your account left. How much you need to make to get back the original balance of $100,000. You need to make $25,000 again to go back to the original balance. It means you will have to make 25,000/75,000= 33%. So you risked 25% but now you need to make 33% to get back your original amount.

Many investors once they lose a trade become desperate and try to risk more to recover their original loss. They end up losing more and more and very soon those investors destroy their accounts. Most of them are out of trading forever soon. There are other traders who try to reduce risk even more on making a losing trade; eventually they lose any opportunity for meaningful growth in their accounts.

Mr. Ahmad Hassam has done Masters from Harvard University. He is interested in day trading and swing trading stocks and currencies. Discover a revolutionary Forex Robot Trading System. 1500 Pips in 1 day-Try Strignano’s Forex Signals free for two weeks!

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Now, first all we need to know exactly what is money management. It is deciding how much money you are willing to invest in the market at a time. Some of the people invest all of their money in one go whereas there are other who invest only a part of their money at a time.

Money management accounts for the risk involved in making a right or a wrong decision. If one makes a right decision it would come into the pocket but if the decision made is wrong it would surely flow out of the pocket. Good management of money would involve keeping a record of all the profit making and the loss making decisions.

The best way to try currency trading is to invest an amount that is no more than 10 times the money actually available in your account. This has to be kept in mind because you do not want to lose large sums of it on single trades.

Another way of managing your money is by analyzing and understanding the amount of risk you can take. It is believed that higher the risk, higher the profit. But this may not be true especially if you lose money on a high risk investment. This can lead to your account getting low on balances thus putting your money management strategies out of order.

These are some of the ways by which one can try and manage money in Forex Trading. Management is very important and every trader should always keep in mind that management can lead to better productivity with the least amount of stress about losing your hard earned money in bad trades.

The author runs a website that provides expert opinion regarding Forex Trading with specialization in the use of Forex Traders. He also writes freelance articles for several Forex Trading sites. For more information visit http://www.profitingfromforex.blogspot.com/.

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Money management in automated forex trading is very crucial for the following reasons.

1. Preserving Capital

A forex trader who does not learn how to preserve trading capital is bound to lose it. Many forex robots only allow you to trade a system. Few are able to protect a traders capital even when they are in a drawdown. A good forex robot should be able to have trading parameters that allow the forex trader to preserve his capital when the market is not in tandem with the automated forex system.

2. Adequate Capital

Other than preserving your capital during slow forex trading periods, a good forex robot should also ensure that the trader has adequate capital to trade the system.

There is nothing worse than a forex trader entering a trade without adequate capital. It is like going to a fast food restaurant without the proper change to buy a burger. Sooner or later the under capitalized forex trader will probably lose any trading funds they might have in their account. A good automated forex system will alert you to this scenario.

3. Set Reasonable Goals

A good automated forex system will have money management techniques that will allow the forex trader set reasonable forex trading goals. Forex trading is a profitable endeavor but most traders give up when they do not achieve trading profit goals that were unrealistic.

A forex trading robot will allow the forex trader to have reasonable expectancy for their trading dependent on how much capital they have and also the performance of their robot.

4. Predetermine Loses

Many times a forex trader gets paralyzed when trying to exit a losing trade. It is common for the forex trader to exit winners too early but exiting loses is more difficult. Traders hold on to a losing position in the expectation that it will soon turn in their favor. My very first trades consisted of losing trades that were some 100 pips while my wins were in their teens.

A good forex robot will ensure that this does not happen and exit your trades at predetermined levels thus letting you conserve your trading capital. Letting the forex robot determine when you should exit a losing trade is probably one of the most important reasons to use automated forex software.

Good forex traders make it a habit to apply money management techniques especially when they are trading automated forex systems. I have realized that my best performing forex trading robots all have money management techniques built into them. Over time, even a mediocre forex robot becomes very profitable with good money management techniques.

Click here for more information on an automatic forex trading system.

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The point about money management is that it is very easy to lose money but is a lot harder to get it back lets say you have a $10,000 account and you lose half of it due to bad money management you have lost 50% of your account which is now down to $5000 but you now need to win 100% of your account back to break even.

So when you are looking for an automated forex system that can make you money, you first need to look whether it uses a stop loss, if it doesn’t then you are heading for trouble. The second thing you need to look at is does it have a money management feature built in and what I mean by this is will it only trade a certain percentage of your account per trade. If the answer to both of these questions is yes then the system is worth taking a further look at, if the answer is no then run for the hills as it will wipe out your account balance faster than you can say “wheres my money gone”

Take a look at this automated forex system that uses stops and money management http://www.therobotrader.com

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I would like to ask about money management. Can you give us some rules that you think a beginner needs to follow?

The rule is actually very simple. I am not saying that it is the only rule but it is certainly what we developed. You should never ever put more than 2% of your trading capital at risk.

When you say “at risk”, what do you actually mean?

Well, when you enter a trade, apart from a small broker spread, you are actually neither gaining nor losing. Still, there has to be a predetermined point you are prepared to lose to. In other words, if the trade goes the exact opposite you expected, there has to be a point that you get out of it. And this point should never exceed 2% of your trading fund. That is probably the most important aspect of trading.

After you pass a certain point in your trading career you should risk even less. Provided you are not undercapitalized and everything goes right, at some point you should exceed $100.000 of profit. Then you should put no more than 1% at risk. Thus, we have two aspects: money management, which is the 2% rule, and money conservation, which is further reducing the risk. Of course, if you start with a small fund, it is very difficult to do. That is one of the reasons why many people fail in this business: they do not have enough money to trade.

Any other cardinal rules?

In a nutshell: always, always and always place a stop loss when you enter a trade. Always. Just in case something horrendous happens.

If we take a hypothetical case, you are just placing a trade: GBP against USD. Imaginary governor of the Bank of England writes a note saying he is really sorry for all the millions he embezzled and puts a rope around his neck and jumps off the table. If you do not have a stop loss in place, your entire fund will be immediately wiped out. As you can see, it is crucial. Some people say: oh, I do not like stop losses, I like to keep it in my head. But what if something disastrous happens? By that time you may not have the opportunity to make that decision. To sum it up:

* Always place a stop loss,

* Risk no more than 2% of your capital,

* Always remember about the money conservation.

But the 2% is not a strict thing, if you can go for 1.5% instead of 2%, it is better. Whenever you can reduce your risk, just do so.

This is a part of the interview with Martin Bottomley, currency trader, teacher and trainer – an excerpt from the book “Conversations with Forex Market Masters” by Dariusz Swierk, PhD.
Book can be obtained here:
http://www.ForexMarketMasters.com

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