Single Trade : Money Management Rules For Forex Trading (Part III)

Learn Forex Nitty Gritty. Perhaps the best advice that you will receive in your trading career is live to trade another day. Currency markets are volatile, brutal and unforgiving. You should learn to survive in the markets. Discover a revolutionary new forex robot.

The single most common factor that causes many traders to blow up their accounts is greed. When you get greedy, you start taking unnecessary risks. You will spend countless hours trying to discover the Holy Grail technical indictor or a forex robot that will make you rich. You believe that by discovering that secret of investing, you will become rich without losing a single trade.

Unfortunately there is no Holy Grail in trading. You must learn not to risk more than 2% of your account on a single trade. Incrementally grow your account over time and never ever be tempted to risk big making one single winning trade that can make you rich.

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You should know how much you are willing to risk in a single trade. I said 2%. But if you want to be aggressive you can go up to 5% but stay between 2-5%. Don’t exceed it. If you are conservative, on the other hand, you should consider risking between 1-2% only.

Once you have decided on the amount of risk you are willing to take, the rest is simple. Suppose you have a $50,000 account. You decide on a risk of 2% only. How much you can risk on a single trade? (50,000)(0.02)=$1,000. This is the maximum amount you should risk on a single trade.

However, if you are trading more than one position at the same time, the amount may become higher. Let’s suppose, you are in 3 trades! You risk only $1,000 per trade. So the total money at risk will be (3) (1000) =$3,000. When you have determined your risk, you are can determine the trade size.

Trade size is the number of contracts you purchase in any one trade. To determine the trade size, you need to first determine where you want to put your stop loss. Let’s use an example to make it clear. Suppose you are willing to risk $1000 on trading EUR/USD pair. You decide on a stop loss of 50 pips. Each pip on EUR/USD pair is $10 worth. So the number of contracts that you need to trade are (1,000)/ (50) (10) =2.

You have taken the guesswork out of your trading once you have determined your risk level and calculated the trade size. You can sleep well now knowing how much of your money is at risk. You are going to be able to trade tomorrow, no matter what happens today.

Using these common money management rules will help you avoid the pitfall of losing almost all the money in your account. Learning to survive the markets and trade another day is the essence of trading. This can help your trading take the next level of profitability.

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Single Trade : Money Management Rules For Forex Trading (Part III)

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