Money Management

Money Management is an important aspect if you want to live to trade another day. As the saying goes, win or lose, we want to trade again the next day. Normally, when I say to people, my “average risk per trade is about 200 pips and some times even more”, they go blank and stare into empty space. The most important to note is that, the number of pips is not the crucial point. It is the risk (money sense) that you are willing or you can afford to take.

In an example, no matter how you place your stop-loss, be it 75, 100, or even 150 pips, the risk/amount of money that you are willing to lose should not CHANGED.

As a conservative recommendation, you should not risk more than 5 – 7% of your account on one trade alone. But, for those who have just start to learn to trade, I would recommend that maybe you could even start with 2 – 4%.

There are a lot of people talking about money management, and yet there are hardly a hand full of them that actually practice to protect their account. We trade forex to make money, NOT to lose it. Most of the new traders, they could only afford to start with a small capital, but they hope to make it big by playing it big, which is not in path with the real world.

You cannot expect, be realistic, to start with an account of $2000 and you expect to make a living out of it. No way man! You need to grow your account slowly and eventually, you could withdraw yourself a paycheck where you could still leave some of the profits to grow your account slowly. This is time period where traders start to lose heart and start to over leverage and thus burst their account.

You might not have notice that with a steady 2% growth on your account per week, how fast you are compounding your account.

I will show you an example of how alarming the compounding looks...

See you then..