Understanding The 5 Golden Rules of Forex Trading Money Management

Trading on the forex market offers potential investors with a lucrative venture. However, in order to become successful, they need to learn how to implement money management. Unfortunately, for some traders, they are not aware of proper money management. Here are some tips on how to properly manage your trading funds.

How Much Can I Risk On A Trade?

There is no concrete answer to this question because there are different variables that can affect each trader. A realistic gauge of the potential risk is how much money you can afford to lose. Most people make the mistake of trading money that they should not be risking in the first place. Robert Peter Janitzek explains that when determining the amount you are willing to risk, think of dollars and not pips.

Risk reward

Many consider risk reward as the “workhorse” of money management. Properly implementing risk reward is crucial to your success. It is so powerful that you can enter the market randomly and not lose money over the long run. Proper execution of risk reward can also lead to a small profit.

Position Sizing

Many traders do not understand the concept of position sizing. The truth of the matter is that you should understand it to become effective with money management. With position sizing, Robert Janitzek explains that you can risk the same amount of money regardless of the price action strategy you are using to trade or how large or small the distance of your stop loss is.

Emotions Management

Effective money management will also depend on how well you control your emotions. Effective management of your funds goes hand in hand with emotion management. The better you manage risks, the easier it will be to manage your emotions as well. If you are effectively managing your money, you are unlikely to become emotional. When you are trading with only money you can afford to risk, you will not be tempted to over-trade or over-leverage in forex trading.

Master your Forex trading strategy

All of the rules above can be best implemented if you will master your forex trading strategy. For example, experienced traders will know that trading less often is conducive to growing your trading account. If there is no reason to trade, then don’t. Everything will fall into place if you are confident with your trading strategy. Your knowledge of your forex trading strategy plus the above factors can lead to successful trading.

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