StephanFX - Forex Trading

Thursday, August 17, 2006

Forex Trading – Money Management

I was reading today again that many people want to get the most reward for their account size, yet are uninformed as to which percentage of their account they should use. Well, for my mini account that started at $300 my risk was about 10%, which is way over the max that you should ever allow, but my strategy had a 30 pip stoploss and a 60 pip target, although I was almost broke before making some nice trades I never risked more than 10% off my account. Online forex trading is also high risk high reward, so with every trade I knew that if this was not my one to win, it is my fault and should not blame the market, which I didn’t. With only risking 10%, I had the ability to trade 8 trades before going broke, had I risked more than 10%, I would have had less chance to make some succesfull trades and maybe start building my forex trading empire.

Now, once I started to trade consistently profitable, I could change my money management strategy. Once I hit the $500 mark I changed from 10% to 5%, thus giving more of a chance to survive should I run into an losing streak, trust me, they do happen.
Should I have hit $300 I would stay on 5% unless my last trade was successful after I dipped below $300. Once I had gotton above $1000, my money management strategy would change again, and risk only 2%, that is $20 on the account. Just imagine how many times you can trade with that risk, only changing your strategy back down, if you are not getting desirable results, in which case I suggest you put of your computer and go for a drive to the nearest park and maybe go through your strategy again.

I have made up a small excel spreadsheet into which I add my account balance, risk percentage, pip value and risked pips. This in turns tells me how much of my account I am risking and the amount of lots I should be trading to get the most out of my trades whilst still being within my money management strategy of only risking 2% on my account.

Trade well, live prosper!