Basic Money Management for Forex Trading

There can be and are whole books written on the topic of money management, but I like to keep things simple so I will just give you a few simple rules that you can follow to implement successful money management in your forex trading.

Actually, to make it even simpler, I believe that money management when it comes to the currency markets can really be summed up in a nice way with just one sentence:

......(wait for it)......

Make sure that you always trade the same number of lots on every trade that you make!

Ok, that's it, end of article. Just kidding, but if you were to walk away and remember just that one sentence you would probably end up making your trading more profitable on the whole.

I will let you in on a few some other aspects of good money management, but CONSISTENCY is a very important part that you should never neglect.

First off, forex traders are able to take advantage of large amounts of leverage, which greatly magnifies any profits or losses. Because of this, doubling your trading account balance is just as easy as completely wiping out your account.

The first simple rule of proper forex money management is to always fund your live trading account with RISK CAPITAL. Simply put, risk capital is just money that you do not need to survive or pay the bills.

When you only fund your account with risk capital, you will feel much more emotionally detached from that money and it will be easier for you to adhere to the rules of your trading strategy.

Something else that many novice forex traders fall victim to is over-trading their account. This will usually happen in a rage after a losing series of trades, and it is very reminiscent of a losing gambler trying to double his bets to recoup his losses, but only ends up losing more.

The second simple rule of money management is not to over-trade your account, and only enter the market when you have SUFFICIENT REASON or justification for entering.

Also realize that it is pretty unrealistic to believe that you can have winning trades 100% of the time. Losing trades just happen sometimes, so deal with it! Because even the best forex traders will still have losing trades occasionally, it is wise to make sure that you always trade with a stop loss in order to minimize your losses (that is rule #3).

But more than anything else, it is important to be consistent in the amount of money that you place on each trade. Do not trade 1 lot, and then later that day trade 8 lots, as this is a sure-fire indication that you are not confident in the rate of success of your trading system.

So remember, be consistent and trade the same number of lots each time!

Mastering Forex Trading

The Forex market is an international arena for millions of buyers and sellers, to sell money in a certain currency, and receive an equivalent amount, in another currency. For example, you can sell Dollars and get the equivalent amount in Euros, based on that day’s trading rates. The forex market is open 24 hours a day. It indirectly determines the value of your money.

There are several Forex trading softwares available on the internet today. They analyze the daily rates and design a ready-to-use strategy, which can be immediately employed. Some of the popular ones are Forex Killer and Forex Autopilot. Do understand one thing before purchasing these softwares. IF these software were indeed returning good profits, the software inventor would not sell it for anything under 2-3 grand. If you are getting any of these for under 500$, it obviously implies that it is a hoax. This is a common mistake that most people commit, when they first start trading. Software is definitely essential, but do not depend on automated predictions, right from the moment you step in. Take time to learn the nuances of Forex trading and once you are settled, you can think about using softwares.

Pivot points are an integral part of the Forex market. Traders use pivot points on and off while trading, to determine support and resistance levels. So what are pivot points? A pivot point is actually a point of rotation. (As you would have already guessed). Pivot points can be calculated based on several charts. The lesser the time frame of the chart, the less accurate the pivot point is. For example, pivot points calculated off hourly charts are inaccurate whereas pivot points calculated on daily charts are less prone to error. Learning to calculate pivot points is essential because it helps you to get tuned to the fluctuations in the daily market.

Forex trading sounds really simple. Doesn’t it? But it is far from simple. Several online websites claim that they have readymade winning strategies. But Forex trading is not just a walk in the park. Here are some tips.

To be a good trader, you must first analyze the risk Vs profit characteristics. If the risk is too high, do not trade, even if the profit is very high. Never gamble your money. That should be embedded in your mind while you trade. Secondly, do some investigation prior to approaching a broker. There are a good amount of fraudulent brokers and it is important not to get duped by them. Lastly, never have any expectations because when it comes to the forex market, where millions of traders worldwide deal in trillions of dollars, you can never really predict the market behavior. So if you have a reasonably fat wallet, a keen eye, no expectations and a whole lot of patience, you might be one of those few who stick it out till the end in the Forex market!