Managing Your Money

Managing your money in the forex is probably the biggest most important thing you can start to learn. When you develop a disciplined approach to your forex trading you can really maximize returns and minimize risks.

In several previous posts I have stated that "I can afford 200 pips to gain 500" This simply started for me as I learned and grew over time. It comes from the 2:1 risk reward ratio - EVERYONE has heard of that haven't you? Well if you haven't it's simply a rule of thumb that says you will look for trades that at least double your money risked, pretty simple huh...

Problem is you never know where the trade WILL go you can only reasonably guess. Lets face it when your trading the forex and your punching a time clock everyday you don't have the teams at your disposal that Mr. Buffet has. Your Time is limited and resources are even less. I faced this dilemma as well. I became wary of trades after getting stung once or twice too. Stops are nice when something drastic happens but lets face that too a stop loss equals only one thing - a loss right?

That is why I use stops based on past performance of good trades. It helps offset losses and many times adds up to a large stop that can still leave you in the trade long enough and risk free enough to profit really nicely.

I started with a deposit just like you did.

Hopefully you have been trading along with me or anyone else and you have identified a good opportunity - you make the trade - it goes up 100 pips and you get out. you made 100 pips that equates to 50 pips and 1 free trade with a 50 pip stop loss. This can help build some profit while making trades that don't risk your balance. If you trade a few more good ones and add to your balance try to maintain that 2:1 ratio after a while you will be able to make trades and never risk your initial investment. it took me a while to realize this and is part of why I trade positions rather than measly ticks. It's also a management technique that has allowed me to enter into winning trades more often since I'm never to worried about stops hitting me a losing money.

Setting stops to tight will ALWAYS lose your money!

I simply apply winnings to stops I just try to keep 50-70% as profit. So there! Now you have a money management tip to help you build profit while reducing risk, it's a simple and easy to follow rule that has helped me build my initial investment deposit.