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Forex Trading Money Management for Profit

In this currency trading tutorial we are going to look at the easiest way to manage your cash in order to have the best probability of making money, instead of losses. Most new traders spend lots of time attempting to find the ideal system and not enough on other facets of their trading. Having a system that ‘works’ isn’t a guarantee of a smooth ride to millionaire status, just as having a car that works is not a warranty of a smooth ride to the following city. You also need to know how to drive it and which road to take. Two different people will not drive that car in the very same way and they may not have the same results.

In reality we will be able to take the simile a step further and it will illustrate the point far better. A professional driver takes that car and drives it scrupulously and safely to the following town. No problem. Then we have two amateurs. Let’s forget about the driver’s licence for a second. He probably makes it to the subsequent city too, perhaps after one or two wrong turns, perhaps with a couple scratches on the paintwork, maybe a little late, but he arrives in the end. But the other beginner jumps straight in the auto with no schooling, heads for the first road that he sees and ends up either in the wrong city or more likely, in the ditch. And remember, that was the same vehicle. In the same way we are able to take the same currency exchange system, give it to 3 different traders, and see three totally different results. So what will we need from a currency trading tutorial and other foreign exchange courses? Just like with the drivers, knowing how to operate the system is only a small part of our training.

Let us take an example. Say you have a system that makes a mean of fifty pips profit on winning trades and thirty pips loss on losing trades, including the spread. Around half of its trades are winners. It’s obvious this is a good system. It should make profits in the long term. Fifty percent winners does not mean that each loss will be followed by a win and vice versa. Or you might have five losses followed by a win followed by another 5 losses.

Later on of course, it would even up and you would have a run where there were more wins; but if you were placing fifty percent or maybe 20% of your account balance on each trade, you’d be wiped out long before the wins started coming in.

A better risk in this particular situation would be 5% or maybe 2%. At ten percent the trader would probably still be wiped out at some point. You can check this out against back tests, but always double the worst situation that you see because it is virtually definitely not the worst that would occur. Money management is something that needs to be learned by any noob trader. You can see from this text why it’s important to take a forex trading tutorial of some sort before you start trading.