New traders always seem want to earn huge profits and want it fast! Unfortunately in the process they forget the rules of money management which in turn leads them to failure in their trading. Forex is a business that requires you to follow the rules of money management because these rules will sky rocket your profits! There is no real way to trade unless you trade with money management.
It is easier to lose in Forex than to earn. This is an unfortunate but true fact. When you first started on your education to Forex, I am sure you must have covered a chapter in one of the books that you bought. The chapter must have spoken about money management and how it will protect your account to enable you to keep on trading even if you incurred losses. The sad fact is that many if not all of the new traders I know would ignore the warning and plunge right in to trading without taking due consideration on the state of their finances. It is no surprise that close to 95% of new traders then die out within 6 to 9 months of trading.
The way to profits is to practice good money management. Without money management a trader will see his or her account wiped out fast. Just imagine that you begin your account with 100%. You have no concrete money management plan. You do have a trading plan that tells you how to enter and exit the market. The plan goes into great detail on the technical aspect of trading but there are little or no money management principles or rules at all. A good money management plan should integrate well with your trading plan. Here are some key elements that you have to have in your plan.
• Amount to risk
• Profit target
• Stop loss
• Risk versus Rewards
• Diversification
The above 5 points would seem to many traders like common sense stuff. The issue is then how come so few traders take the effort to write down the exact figures into their trading plan? I know that the professional traders do that, and they score big time. When they lose a trade it is of no consequence because the amount has been planned for. There are no ugly surprises to shake the confidence of the professional trader. The pro trader can focus on the important things like making more pips!
So Why Does Money Management help you make more Pips? Well in answer to that question you will have to experience the power of money management to fully appreciate it. Money management will defend your account and while your account is defend, you may incur losses (most likely) but because your risk versus your returns his correctly placed you can expect that each win will cover your losses and make you a profit to boot. For instance a good risk/reward ration is 1:1.5, that means for every $1you risk there is the upside potential of $1.50. Obviously you have to decide what the best risk/return ration is for you. Find out as much as you can about money management it will save your account.
Dr. Joshua Geralds is a successful Investment Specialist with over twenty years experience increasing the income of people world wide. Visit http://www.pipsalot.com to learn how to make steady profits through safe trading and down load your FREE e-book "Money Management" for a limited time only! |
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