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scentedsandwichwitch-blog · 8 years ago

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7 Money management secrets for Successful forex trading

Money management is a topic that every trader does not want to talk about. It might be painful, boring or embarrassing for forex traders to talk about the risks that capital markets hold and money management, simply because they know that they aren’t getting it right. However, talking about the elephant in the room and having to learn to profit from the forex market, can make a significant difference between earning profit and exiting the capital market the same day you joined. The best thing is to be honest with yourself your capabilities and trading strategies. Focus on the hardest and the most boring items that are necessary for a successful forex trading. Ignoring them will make these issues develop into big problems that are beyond your control.

While many traders will recommend you to acquire forex education and training, which is important, being a successful trader depends on self-discipline, patience, objectivity, and realistic expectations. The following are a few tips to help you on your quest to successful forex trading.

Keep your risk consistent

Keeping your risk consistent is the first thing you should learn to profit from the forex market. Never risk more than 1% of your account capital. This instils good discipline from the outset. Most traders begin to increase their risk soon after they realize they are making some money. This is one of the best ways to blow up your trading account. Most traders tend to increase their sizes after a series of winning trades. This is simply increasing your risk and you ought to avoid it. This is the secret; do the opposite of what a majority of traders do. Take this as your elementary tool for successful forex trading.

Successful traders will give you the same advice. This is not reference to forex education and training, rather it’s because of their personal experience in their successful forex trading career. I know it’s very tempting to increase your trading volumes after a successful bet. Please be disciplined; stick to what I have explained above.

After winning you normally get over confident. There’s nothing wrong with this if you still do it or have done it in the past. You’re on the learning curve. It’s natural for you to become less risk averse after winning. However, this is something you must put to the end if you want to learn to profit from the forex market. If you are reading this article, you’re better placed. It is important to note that even when following your trading strategy, your wins and gains are randomly distributed. What this implies is that after you win, there is no systematic logic to think that your next trade will be a win. Therefore, you don’t have to increase your risk. However, as humans, it’s really hard to overlook or ignore the feelings of confidence and euphoria after a successful trade, but for a long-term survival in the forex market, you have to.

Withdraw profits

Keeping a consistent risk is one of the best strategies to successful forex trading. Professionals do not jack up their financial risks after every win; that’s not logic or a recommended way to manage risk. Most professional forex traders who want to make a living in the capital markets withdraw their profits every month. Above all, they maintain almost the same amount of capital throughout the month. Withdrawing your profits every month will help to maintain your risks over the trading period.

All you need is to build your trading account up to a point you are comfortable to begin withdrawals. Therefore, the amount of risk on every trade will not increase every time considering that your capital will have reached an equilibrium point.

Best practice to move a stop loss to breakeven

There is a secret behind breakeven stop losses. You should never move a stop loss to breakeven only if there is a logical, price-based reason to move it. Moving a stop loss to the same level as the entry point makes no sense if your position hasn’t moved more than 20 pips plus. Moving to breakeven or reference to some predetermined rules is not an efficient way of managing trades. There are several times you’ll move a stop loss to breakeven only for the market to come back, stop you out and move in your favour. Give your trades room to move and if you do not have a valid reason to tighten your stop losses in order to break even, then don’t.

Very few traders realize that messing with their stop losses or closing trades before having a chance to move, is voluntarily edging their chances of winning. Actually, moving to break-even without a logical based reason is because of emotion; precisely, fear. Let go of the fear of losing your cash. Losing is part of the learning curve and until you let your trades breathe without emotional interference, then your trading life expectancy is short; you may never become a successful trader.

However, moving to breakeven is at times based on some logical reasons, which are:

Big news announcements. Don’t be greedy

Big news announcements. If big news like the Non-Farm Payrolls is up and you’re up for a good profit, move to breakeven or keep an eye on the trade. These are volatile news announcements that normally change market positions.

If a market position nears key chart level and then begins to indicate a reversal. Then, take that as a warning that the market might reverse and then trail your stop loss to breakeven or even take partial profits.

In case you entered a trade and it’s been several days and nothing is happening, move to breakeven or exit the trade. This is termed as “time stop” where you use time to manage your trading. In actual sense, the best trades will move in your favour shortly after you enter.

When an opposing signal gives a warning and changes in market positions, take this as a logical reason to exit or move to breakeven.

Making profit is the bedrock of successful forex trading. It’s actually a secret because most traders indeed don’t make profits. In fact, many forex traders never take profit. It becomes hard to take profit if a trade is in your favour. This is because you may want to leave it open until it closes at your set take profit. Whilst it’s necessary to let your trade’s breathe, you need to know when to do this. Never let every winning trade run. The market may ebb and flow, and in many cases, it won’t take a strong move without retracing. Therefore, as a short-term day trader, it would make a lot of sense to take a solid 2-1 or 3-1 profit if available. Don’t wait until the market position retraces to your entry point or below, at which you might exit emotionally because you are mad of losing all that open profit.

Know when to let profits run

Don’t try to hit a home run on every trade you enter. However, the market is ripe for such trades every now and then, but don’t be tempted to aim a home run on every trade. You need to know that the market is only going to make a particular range every week. For instance, the EURUSD makes an approximate weekly range of 250 pips.

Deciding when to let your trades run and when to just take a 1-1, 2-1 or 3-1 reward is where your discretionary trading skills come into play. However, there’s no thumb rule to this. Forex education and training, gut feel for charts reading and screen time are a few things you must have to learn to profit from the Forex market.

Record everything

Although this might seem very simple, and perhaps silly, this is a tried-and-true strategy to learn to profit from the forex market and stay objective with your money. Keeping a proper record in a trading journal is what will differentiate between successful traders from the ones that aren’t.

When opening a particular trade, it’s important to journal the reasons that made you think that the trade is good. The journal entry should include indicators and fundamentals. Write down your entry and exit positions and make small notes about the trade. This might entail your level of confidence and optimism, emotions and anxiety. Every time you trade, refer to the journal. Doing this will objectify your trades.

Take into account forex education and training

While money management tips and self-discipline for successful forex trading are vital for traders, with forex education and training, you are better placed to learn to profit from the forex market. Looking for a good mentor is crucial in this industry, here is an article I wrote recently that gained a lot of interest from my readers "the advantages of having a forex mentor". However, you should be cautious of those purporting to offer forex education and training services yet they do not have any knowledge in the money markets.

Becoming a successful trader will highly depend on your trading strategy and forex education and training. You need to learn to profit from the forex market through the various tips explained above. However, keep your expectations within an attainable range.

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