There are many different ways to make money in Forex but only one way to lose it and that's to let your losses out of control. Most traders simply have no idea how to place stops and how to manage overall equity and they lose. Here we will look at how to employ correct Forex money management for bigger gains.
If you place a stop, don't make the error of thinking a close stop reduces risk - it doesn't I see traders who risk 10 or 20 ticks and this is ridiculous and all they do is get stopped out. You need to risk to make a gain and this doesn't mean being rash it means taking enough risk to make a gain.
When placing stops make sure they are behind a firm level of resistance or support normally, I would be looking to risk 50 - 100 ticks and be looking for a gain of at least 3 - 5 times this amount.
As you can gather this sort of stop placement won't suit day traders or scalpers but this is a dumb way to trade anyway, as all daily volatility is random in this period. You simply can't get the odds on your side, you could in days before instant price delivery, when a few people had the prices before everyone else but those days are history.
Either swing trade or long term trend follow, the profit potential is far better and you can get the odds on your side and win. You could in days before instant price delivery, when a few people had the prices before everyone else but those days are history.
How much should you risk per trade?
A lot of common wisdom tells you 2% but for most traders with small accounts this is not an option, to make decent gains you need to risk 5 - 10%. You should also never diversify on a small account, as all you will be doing is diluting potential gains, focus on the best trades and hit the trade you like best hard.
Always keep your eye on your core equity and if you make a lot of money quickly, simply take it - if my account rises in value by 20% or more in a short period of time, I bank it and have a break from trading.
If you use the above simple money management tips, you will maximize reward and restrict risk and be able to target triple digit annual gains and enjoy currency trading success.
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