Money management trading tips
(Personal write up taken from: www.astrofx13.com)
Money management is vital to success in trading alongside using the correct lot size in comparison to account size and stop loss. Many people look at Forex as a quick fix to make a raise. From personal experience this attitude will drain your account in a short space of time.The key to consistency is patience, compounding is powerful; your trading success will come.
It is unwise to risk more than 1-3% (MAXIMUM) of your account on any one trade!
£30 (3% risk amount) Divided by 30 (stop loss) = £1 per pip.
Risk amount in £/$ divided by stop loss size = the correct lot size to stick within parameters.
£113.80 (2% risk amount) Divided by 55(stop loss) = £2.06 per pip
All of these tips are very interesting and useful. Some of the less known are as follows:
Tips relating to trader's behaviour and psychology, some of the less known are:
The trader exposes himself/herself to a higher risk of loss/ incorrect judgement when they:
Forex trading tips that you can use to avoid disasters and maximize your potential in the currency exchange market.
(extract taken from http://www.forexfraud.com/forex-articles/forex-trading-tips.html)
To profit in trading, you must make recognize the markets. To recognize the markets, you must first know and recognize yourself. The first step of gaining self-awareness is ensuring that your risk tolerance and capital allocation to Forex and trading are not excessive or lacking. This means that you must carefully study and analyse your own financial goals in engaging Forex trading.
Once you know what you want from trading, you must systematically define a timeframe and a working plan for your trading career. What constitutes failure, what would be defined as success? What is the timeframe for the trial and error process that will inevitably be an important part of your learning? How much time can you devote to trading? Do you aim at financial independence, or merely aim to generate extra income? These and similar questions must be answered before you can gain the clear vision necessary for a persistent and patient approach to trading. Also, having clear goals will make it easier to abandon the endeavour entirely in case that the risks/return analysis precludes a profitable outcome.
While this point is often neglected by beginners, it is impossible to overemphasize the importance of the choice of broker. That a fake or unreliable broker invalidates all the gains acquired through hard work and study is obvious. But it is equally important that your expertise level and trading goals match the details of the offer made by the broker. What kind of client profile does the Forex broker aim at reaching? Does the trading software suit your expectations? How efficient is customer service? All these must be carefully scrutinized before even beginning to consider the intricacies of trading itself. Please refer to Forex broker reviews for help.
In continuation of the above item, it is necessary that we choose the account package that is most suited to our expectations and knowledge level. The various types of accounts offered by brokers can be confusing at first, but the general rule is that lower leverage is better. If you have a good understanding of leverage and trading in general, you can be satisfied with a standard account. If you’re a complete beginner, it is a must that you undergo a period of study and practice by the use of a mini account. In general, the lower your risk, the higher your chances, so make your choices in the most conservative way possible, especially at the beginning of your career.
One of the best tips for trading Forex is to begin with small sums, and low leverage, while adding up to your account as it generates profits. There is no justification to the idea that a larger account will allow greater profits. If you can increase the size of your account through your trading choices, perfect. If not, there’s no point in keeping pumping money to an account that is burning cash like an furnace burns paper.
The world of currency trading is deep and complicated, due to the chaotic nature of the markets, and the diverse characters and purposes of market participants. It is hard to master all the different kinds of financial activity that goes on in this world, so it is a great idea to restrict our trading activity to a currency pair which we understand, and with which we are familiar. Beginning with the trading of the currency of your nation can be a great idea. If that’s not your choice, sticking to the most liquid and widely traded pairs can also be an excellent practice for both the beginner and the advanced traders.
Simple as it is, failure to abide by this principle has been the doom of countless traders. In general, if you’re unsure that you know what you’re doing, and that you can defend your opinion with strength and vigour against critics that you value and trust, do not trade. Do not trade on the basis of hearsay or rumours. And do not act unless you’re confident that you understand both the positive consequences, and the adverse results that may result from opening a position.
While this is just common sense, ignorance of the principle or carelessness in its employment has caused disasters to many traders in the course of history. Nobody knows where a currency pair will be heading during the next few hours, days, or even weeks. There are lots of educated guesses, but no knowledge of where the price will be a short while later. Thus, the only certain value about trading is now. Nothing much can be said about the future. Consequently, there can be no point in adding to a losing position, unless you love gambling. A position in the red can be allowed to survive on its own in accordance with the initial plan, but adding to it can never be an advisable practice.
Greed, excitement, euphoria, panic or fear should have no place in traders’ calculations. Yet traders are human beings, so it is obvious that we have to find a way of living with these emotions, while at the same time controlling them and minimizing their effect on our lives. That is why traders are always advised to begin with small amounts. By reducing our risk, we can be calm enough to realize our long term goals, reducing the impact of emotions on our trading choices. A logical approach and less emotional intensity are the best Forex trading tips necessary to a successful career.
An analytical approach to trading does not begin at the fundamental and technical analysis of price trends, or the formulation of trading strategies. It begins at the first step taken into the career, with the first dollar placed in an open position, and the first mistakes in calculation and trading methods. The successful trader will keep a diary, a journal of his trading activity where he carefully scrutinizes his mistakes and successes to find out what works and what does not. This is one of the most importance Forex trading tips that you will get from a good mentor.
We already noted the importance of emotional control in ensuring a successful and profitable career. In order to minimize the role of emotions, one of the best of courses of action would be the automatisation of trading choices and trader behaviour. You need to do make sure that your responses to similar situations and trading scenarios are themselves similar in nature. In other words, don’t improvise. Let your reactions to market events follow a studied and tested pattern.
Forex trading is not rocket science. There is no expectation that you be a mathematical genius, or an economics professor to acquire wealth in currency trading. Instead, clarity of vision, and well-defined, carefully observed goals and practices offer the surest path to a respectable career in Forex. To achieve this, you must resist the temptation to overexplain, overanalyse, and most importantly, to rationalize your failures. A failure is a failure regardless of the conditions that led to it.
In general, a beginner is never advised to trade against trends, or to pick tops and bottoms by betting against the main forces of market momentum. Join the trends so that your mind can relax. Fight the trends, and constant stress and fear will wreck your career.
Forex is all about risk analysis and probability. There is no single method or style that will generate profits all the time. The key to success is positioning in such a way that the losses are harmless, while the profits are multiplied. Such a positioning is only possible by managing our risk allocations in accordance with an understanding of probability and risk management.
Recognize your failures, and try to accommodate them if they can’t be eliminated completely. Above all, resist the illusion that you somehow possess the alchemist’s stone of trading. Such an attitude will surely be ruinous on your career eventually.
While it is a great idea to discuss your opinion on the markets with others, you should be the one making the decisions. Consider the opinions of others, but make your own choices. It is your money after all.
Once we make profits, it is time to protect them. Money management is about the minimization of losses, and maximization of profits. To ensure that you don’t gamble away your hard-earned profits, to “cut your losses short, and let profits ride”, you should keep the bible of money management as the centrepiece of your trading library at all times.
That we have placed this so low in the list should not surprise the experienced trader. Faulty analysis is rarely the cause of a wiped-out account. A career that fails to begin is never killed by the consequences of erroneous application or understanding of fundamental or technical studies. Other issues that are related to money management and emotional control are far more important than analysis for the beginner, but as those issues are overcome, and steady gains are realized, the edge gained by successful analysis of the markets will be invaluable. Analysis is important, but only after a proper attitude to trading and risk taking is attained.
Finally, provided that you risk only what you can afford to lose, persistence, and a determination to succeed are great advantages. It is highly unlikely that you will become a trading genius overnight, so it is only sensible to await the ripening of your skills, and the development of your talents before giving up. As long as the learning process is painless, as long as the amounts that you risk do not derail your plans about the future and your life in general, the pains of the learning process will be harmless.