Learning to Understanding Money Management ~ forex trader pro reviews
Money management is one of the important factors related to forex trading risk control. Trading is a business and there are certainly risks in business. Any amount of capital we are, of course, we want to limit the amount of risk that might occur. learn properly understand the risk control is the key to success to generate profit consistent in the long run. Many novice traders that their accounts battered because it is not apply money management discipline, and some have no idea at all about money management. In this paper will discuss 5 key points in the money management should understood and applied correctly and discipline in forex trading.
- The amount of risk per trade
Great risk per trade is measured by the value of money, not with pips, and is usually determined the percentage of capital or balance in our trading account. Lets just say we have not no trading positions and balance in our account is still intact, the greater the risk per trade is the amount of loss that we specify in opening a trading position. There is no provision standard for this and could be different between one trader to another trader, depending of the financial condition of each. Clear use of funds would not really used in the near future, and avoid forex trading using funds for daily living. Assume that the allocation of funds for forex trading you are ready for the missing funds so You are not emotional when trading.
As an illustration, professional traders whose income only from trading (stocks, forex, option dsb). rarely risk more than 3 % of their total capital. On the other hand, many experienced traders recommend magnitude of risk between 3 % to 5 % of capital. But regardless of the amount of risk that you specify, you should feel comfortable with The options trading so that you can calmly and without emotion.
Well, why the big risk is measured by the value of money is not the pip? This relates to amount of lot size or volume per trade which we will use in accordance with the calculation risk, or commonly known as position sizing which will be described below.
- The amount of lot size per trade (position sizing)
Large lot size is also referred to as the volume (on the Metatrader platform), or there is a call quantity. Because it is already very popular Metatrader platform, forex traders are generally more familiar as the trading volume. How to determine the volume of trades based on the risk of prevalent called position sizing. With position sizing, great risk in the value of money will always the same regardless of the size stop loss (risk in pips) we set. Volume trading can be set as the big stop loss is the most fit for us. For example, for instance we trade with standard lots on the currency pair EUR / USD, so its value per pip is USD 10. If we had a balance of $ 25,000, and the risk that we set for open a position is 4 %, then the greater the risk we were USD 25,000 X 4 % = USD 1,000. Tell me of the results of our analysis of the most appropriate stop loss is 50 pips, then the trading volume we are in a standard lot is : USD 1,000 / (50 x $ 10) = 2 lots.
(Note : Forex Brokers in Indonesia there is a mention standard lot with a regular lot, and account only for trading with the standard lot is called regular account)
Well, if there are 2 different traders with capital but apply a percentage risk together and stop loss (risk in pips) the same as well, of the two different lot size. Trader The larger volume of capital will be greater tradingnya even stop loss (risk of pip) both. That is why the amount of risk per trade is usually measured by value for money, not by the amount of pips on stop loss.
- The magnitude of the risk / reward ratio
Risk / reward ratio is the ratio between the magnitude of the risk (stop loss) and the magnitude of the target profit (reward) we set. If the preceding discussion we have determined the risk and the size of the lot, then the next step is to determine the amount of our profit targets required compared with the risk that we created earlier. Similarly, the risks, to set profit targets no default provisions, except that we must objectively and realistic given the current market conditions. Experienced traders organized that the risk / reward ratio should be at least 1 : 2, meaning that if the stop loss is 50 pips then we should our profit target of at least 100 pips, even if it could be 1 : 3 or more will be even better. The goal is : if we can implement risk / reward ratio with a consistent, long-term be obtained return (profit) adequate although the percentage of our overall profit still smaller than the loss of his. For example, a trader 70 % of the total position loss, but still generate a return of 15% of the total trading position, due to implementing the risk / reward a minimum ratio of 1 : 2 at each open position.
The important thing to understand in this case is to first determine the amount of risk before calculating the profit potential we obtain.
- Money management should be able to control our emotions
In addition to money management, another important factor in trading is emotional involvement. Both of these affect each other, and if it is not understood correctly will take effect negative in trading. Poor money management can destroy our trading, thus Similarly uncontrolled emotions. For example, if we lack an understanding of money management so always loss on each position our trading, it will be difficult for us to not involve emotions when trading. Conversely, the better we can apply the money management in trading, our emotions will be more restrained in dealing with trading results. We can be said to be successful apply money management if we could manage the funds in a trading account with an effective and emotional.
- Money management will work well only if we master the trading strategy
If we do not fully master the trading strategy that we use to always doubt when they wanted to open a position, then the best sort our understanding on money management results will not be maximized.
Trading strategy and money management is a major component in the trading plan must run simultaneously. Money management will work well only if we have mastered and confident in the trading strategy that we use to produce consistent profit in the long run.
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