Percentage Based Money Management.
Forex business can help traders to make a profit, but to get the consistency of profit is not easy. a trader must keep emotions and apply money management with discipline and patience. now I try to be able to trade with discipline in TICKMILL
yes, to be able to get consistent profits then we need to be able to control the emotions well, have a good emotional control will make us able to trade with the maximum. Therefore, we need to be able to keep controling emotions well using small capital first
Emotions are very bad in Forex trade because it disturbs our concentration on the market and we will not be able to generate a good profit from Forex market because of emotion involvement. We can avoid emotions if we make and follow some good strategies with good patience.
yes, of course in forex trading then we should be able to control emotions well for us to maximize the funds properly. trading without emotional control will only make us experience many losses
money management is very important for traders because by having a good money management will make us survive in forex. Trading with a large capital or small as long as we have good money management so we can survive in the forex. Including the placement of sl and tp for trading, therefore, for a trade I only put a maximum of 10% of the capital for Sl and Tp
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Money Management and Risk Control
The single most important thing in the world of trading is your money management and risk control.
You have maybe heard horror stories of people losing all their money in trading but when they have this is virtually always been due to bad management of their money and poor risk control.
When you are trading you have complete control over how much you and you know what you are risking before you open the trade if you are doing it right.
This is controlled by “lot sizes” and the number of “pips” you set as your “stop loss” – if these terms are unfamiliar to you, don’t worry about it, we will explain them in late
The important thing is you can use these three things to set you risk and know exactly what you are getting yourself in for before you open the trade.
There are a few ways to manage your risk, some more advanced methods are really good but we will not touch on them for now.
We will just focus on simple percentage based risk control.
You should never be risking more than 1% or at the very most 2% of your account in any one trade.
If you are using 1% risk you would have to lose at least 100 trades in a row to go broke which is very unlikely to happen, especially if you are trading our signals and following in our footsteps and down the line once we have taught you, trading our strategies.
You would actually have to lose more than 100 trades in a row since if you keep risking 1% your risk will drop as your account size does.
For example, if you start with $1,000 1% of this is $10.
If you were to lose 10 trades in a row you would have $900 and then 1% risk would be $9, so since you should scale down your risk you would have to lose a massive string of trades to go broke.
If you were to go broke following this money management it would be quite safe to say trading was just not for you.
This small set percentage risk is the first fundamental of money management.
The second is what we call the risk to reward ratio, which will usually be expressed as risk:reward and shortened to R:R.
The R:R is how much you are looking to gain compared to how much you are risking.
This is simple enough. Let’s go back to our $1,000 account example
You are risking 1%. It is one of my GOLDEN RULES that you must always use at least a 1:1 ratio, which means for every $1 you risk you must be looking to make at least $1 return.
So on your 1% risk of $1,000 you are risking $10 and going for at least $10 return.
This means if you can win 55% of your trades, then you are profitable. That is pretty good but we are here as serious investors, not gamblers so we want to make it better than that.
We do that by also sometimes trading with a better than 1:1 ratio, for example a 2:1 ratio means you are risking $10 and going for $20.
Doing this, you can take 3 trades and lose two and still be even, 33% win rate keeps you even, anything over 40% is very profitable.
Hopefully by now you are starting to understand that we do not have to be winning a massive percentage of trades, there will be times we do win a massive percentage of trades and these will be jackpot times but even when we are just winning a modest amount of trades, we will be successful enough to keep ticking along.
You should also see that these horror stories of people losing everything are unlikely to happen to you if you are following a good money management system.
Now you understand the basic theory of this money management strategy, in the next article we will explain exactly what all that “lot sizes”, “pips” and “stop loss” stuff we mentioned at the start are all about and how they are used to get you the desired level of
Now you know the theory and reasoning behind it we will explain to you how to actually do this is practice using Risk Management and Lot Sizing
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