Adjusting your trade size on a fixed percentage isn’t a good idea. That we established in part 1. Now, how exactly do we apply this “money management secret”?

After all, you can’t just hold one trade size indefinitely.

When do you adjust your risk per trade? If you never adjust it, your risk per trade will probably become much too large or too small eventually.

Here is the rule of thumb.

If your account is between $1000 and $10,000. At this stage, only readjust your risk per trade once you’ve increased your account by 50% or decreased it by 20%. Then once you’ve readjusted it, do not readjust it until your account grows by 50% or decreases by 20%.

If your account is between $10,000 and $100,000. At this stage, only readjust your risk per trade once you’ve increase your account by 40% or decreased it by 20%. Then once you’ve readjusted it, do not readjust it until your account grows by 40% or decreases by 20%.

If your account is above $100,000. At this stage, risk only 1% of your account per trade. Only readjust your risk per trade once you’ve increase your account by 30% or decreased it by 20%. Then once you’ve readjusted it, do not readjust it until your account grows by 30% or decreases by 20%.

Now, if you’re trading an account under $1000, you need to be trading micro lots. Just knock a zero off of all the numbers above and you have your money management rules.

For example, If your account is between $100 and $1000. At this stage, only readjust your risk per trade once you’ve increased your account by 50% or decreased it by 20%. Then once you’ve readjusted it, do not readjust it until your account grows by 50% or decreases by 20%.



By: Nathan Pennington

What is money management? It is managing risk in your trading. Most traders calculate potential profit before making a trade. Professional traders calculate risk before making a trade.

Pay attention here, this is the most important area of trading if you get this wrong you cannot be a trader. It won’t work, take my word for it. I know, so don’t even try to not follow proper money management. Why do people insist on doing things that don’t work, I don’t know. If you don’t follow these guidelines you are gambling, in gambling you lose unless you get lucky. Remember we are traders not gamblers.

Money management is protecting your account, it is that simple, protect your account. You protect your account by managing risk. Before you ever make a trade determine the maximum dollar risk and the total % that it is in you account. Let me say that again because that is the most important rule in trading. Before you ever make a trade determine the maximum dollar risk and the total % that it is in you account.

How much should you risk?

It can be anywhere from 2 to 5% I personally like 2% because I can still easily make my profit goal of 5% per week. Trading is not a get rich quick program. It is a slow process to take profit from the market over time and the traders that have patience are the ones that will be successful. However, 5% is still low enough that if you follow it you will not wipe out your account. Remember to adjust the risk and figure it out after every trade because after every trade your account balance changes.

Risk to reward ratio is important in a money management system. This means that when you make a trade have a set profit target that is greater than the risk. For example if you expect to make 50 pips in a trade set your stop at 25 pips. That is a 2 to one risk to reward ratio. This is also where risk to reward helps you if your win 3 times more than your losses than you can lose 50% of the time and still be profitable.

In conclusion, practice proper capital management in all your trading activities. If you can master your fund management you will be fine because even if you are not the best trader you will still be able to keep trading until you get to be the best trader. You will never wipe out your account.



By: Casey Stubbs

As part of your Forex trading strategy, you must be able to manage the money that you invest in trades and determine when it is advantageous to enter or exit a trade. Most trading strategies are good for determining when a trade should be entered, but not all strategies establish an exit. If your Forex trading strategy does not provide exit points, you will still need some method of determining when to exit.

Profit and Loss (P/L) – Forex trading systems provide one of the easiest forms of executing and monitoring profit and loss (P/L) in investments. P/Ls in the spot market are generally measured in decimal units. A calculation of the long and short position for a leveraged currency pair will easily provide you with the amount of profit and the amount of loss.

Gains to Losses – You also need a method of predicting the chance of profiting from your trades in order to decide how much money to invest in your Forex trading strategy. By calculating the ratio of gains to losses you will be able to determine if your trades are providing a higher percentage of gains than losses. If your trades are gaining then you need not invest more money into already winning trades.

Risks to Reward – Since Forex trading systems involve risk, you need to able to measure the risk taken as compared to reward received. A risk/reward ratio may be determined by dividing a take-profit spread by a corresponding stop-limit spread. No rollover or interest rate differential is required. You are cautioned against allocating more than 10% of your total investment funds into a single trade as either margin or risk. Your Forex trading techniques should include enough funds to allow you to engage in multiple trades. If some trades result in loss, those losses have the potential to be recovered with other winning trades. If half or more of your trades result in loss, you need to analyze and adjust your Forex trading strategy.

Limiting Losses – You may limit the amount of loss by adjusting take-profit and stop-limit orders relative to the entry market price. By raising stop-limit orders and lowering take-profit orders, you may reduce loss potential. If prices create adverse results, you may eliminate any further loss by manually liquidating the trade. If price moves are favorable, you may increase your limits. In some instances it may be advantageous to raise the stop-limit order above the market entry price. This guarantees a profit of at least the originally targeted price and at most, the newly established price.

If you have taken a long position, you should avoid lowering stop-limit orders and accept a loss or trade a different currency pair. Take-profit orders should only be lowered in long positions if a reversal is anticipated. Otherwise, you should liquidate. If you have taken a short position, you should avoid increasing stop-limit orders and only increase take-profit orders in anticipation of a reversal. Many large losses are due to moving and removing stop-loss orders. The Forex trading strategy for uncertain traders should be to liquidate trades for small losses or small profits rather than hanging around to suffer a greater loss.

With most Forex strategies, stop-loss orders are typically placed below and above previous highs or lows. However, you may find it advantageous to set your stops according to market volatility. Using charts of recent currency pairs you should be able to gauge shifts in volatility. This information could then be used to set stops and price objectives. This method may also be used to establish entry points in the market.



By: Andrew Daigle

In trading a currency, you can only profit if you are aware of the two sides of a coin. Don’t expect that you will always choose the right currency. Sometimes, even when facts lead you to choose particular currency, the currency still didn’t perform as you had expected. Learn these principles and have a better chance in trading currency:

Principle #1: Expect to lose, and lose some more

Not every day is Christmas. Sometimes you just don’t get what you want even if you’ve been good. Prepare as much as you can in studying your currency of choice. Know everything there is to know. But don’t put all your money in a single transaction. A proper money management wouldn’t allow you to lose everything all at once. Hope to win but also prepare just in case you lose. Depending on your money management, you can lose as much as 5 times in a row and still end up with profits at the end of a month.

Principle #2: Having an umbrella is always good, but especially when it rains

Remember the time when you brought your umbrella on the slight chance of rain. Some people may have made fun of your umbrella, but when the rain came you end up dry while they were all wet. Who’s laughing now? The slight chance is all you need to keep yourself from losing your money. Having that safety net is for the times you lose money. You’ll have your vengeance on another transaction. Keep your umbrella handy and protect yourself when your currency of choice failed you.



By: Timothy Stevens

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.

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 for anyone in trading. You will win and you will lose. So you must learn not to risk more than 2% of your account on one trade. Grow your account incrementally over time. Never ever be tempted to risk big, making one single winning trade that can make you rich.

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

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

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

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

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 and simple money management rules will help you avoid the pitfall of losing almost all the money in your account. Never ever take more than 2-5% risk in any single trade. Learning to survive the markets and trading another day is the essence of trading. This can help take your trading to the next level of profitability.



By: Ahmad A Hassam