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Forex Money Management Secret

Forex Money Management Secret

Forex Money Management Secret More often than not, a well constructed system will work, but the trader doesn’t.

We have to put our time in and learn the system which requires a lot of work, but there are traders who are

Work alcoholics who fail at trading, why?

My answer to that is DISCIPLINE, doing whets right when it feels wrong, following a system and more importantly risk control

Many traders try to make discipline more difficult than it really is but that’s just human nature.

To gain that confidence in discipline I believe you only have to change one simple rule and stick with it and you will be on your way to success.

I read a lot of books on trading and psychology some are good and most are bad and clutter my mind with nonsense but there is one book in particular that really made sense, the book is called Market Wizards by: Jack Schwager.

The rule that I was referring to is stated over and over in this book but we as humans by pass this rule because of greed we look for a magic indicator from page one we have the intentions of finding the holy grail, “there must be some tip or strategy that I can make millions trading” let me buy this book. As I read page after page chapter after chapter different types of traders I realize the rule in each trader.

The Forex Money Management Secret Rule is:

Forex Money Management

The size of your trade is the magic rule to becoming a discipline trader. (Risk)

Most professional traders trade 1-2% on each trade. A lot of new traders trade with to much money at one time and very tight stops, 90% of which they burn there accounts or blame it on the broker.

By using good forex money management and risk control we build our confidence, we already know that our system works that’s why we trade it, he has already done the most difficult and time consuming part all we have to do is follow some simple steps and practice a very simple rule but yet our greed gets in the way.

Your losing trade should not affect you in any way!!

Let me give you an example with my 4 year old sister:

On a Tuesday evening we decided to go for ice cream I had a fifty dollar bill and a ten dollar bill in my wallet the total came to less than $10.00 with some change. Some how I lost the change in the mist of walking around and eating our ice cream. I get home and I realized that I had lost .37 cents, now the question is would I go back and look for the change “NO” its to small of a loss it doesn’t effect me. Now if I had lost the $50.00 bill that would effect me the loss was greater. That’s how you should trade your account.

So that being said I going to do my best to explain the forex money management math behind the magic:

Winning % Average win

Losing %    /    Average loss   = Profit Factor

Winning percentage divided by losing percentage multiplied by average win over average loss. That’s is going to equal your profit factor.

If it equals 1 you will break even over time

Any thing over one you will make money over time

Any thing less than one is bad

1.5 and over is what you want.  Jons system is well over 1.5

Now Risk Per Trade:

2% per trade, why?  No reason just what I use

You risk 2% of your account on every single trade what most new traders do is, lets say the start with $10,000

2% = 200  lets say the lose the that trade now the account is worth $9800.00 * 2% = 196 you are now short yourself  $4.00. You must maintain your 2% =200 until you have reached a predetermined threshold  where your risk must be cut down .

Forex money management Example;

Lets say your account is 10000 and the account goes down to 7000 that’s a 30% drop now you reduce your risk to 1% and only change until your reach $10,000 then you would go back to 2%.

The same goes for the opposite direction;

You start your account with 10.000 2% = 200 maintain that trade size until you reached a predetermined goal or percent increase of your account. Lets say $13,000.00 now your account is +30% you can now increase your lot size but still maintain your risk per trade of 2%

2% of 13,000 = $260

You now maintain the $260 per trade until one of 2 things happen

  1. Increase of 30% again = 13,000 * 30%= 16,900
  2. Decrease of 30% back to 10,000

The percentages are up to you to determine your risk and goals.

So this was my Money Management Forex Secret, I hope will implement this secret on your trading.

XAUUSD Forex Money Management

xau usd money management


Lot Sizing Tips (Money Management)

$50 Capital
High risk = 0.10 lot
Mid risk = 0.05 lot
Low risk = 0.01 lot

$100 Capital
High risk = 0.20 lot
Mid risk = 0.10 lot
Low risk = 0.01 lot

$200 Capital
High risk = 0.40 lot
Mid risk = 0.20 lot
Low risk = 0.02 lot

$500 Capital
High risk = 1.00 lot
Mid risk = 0.50 lot
Low risk = 0.05 lot

$1000 Capital
High risk = 2.00 lot
Mid risk = 1.00 lot
Low risk = 0.10 lot

If you have different amounts from what is shown above, take the closes amount and follow through

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