To trade on the Forex markets is to speculate on uncertainty. Serious and professional traders should always incorporate money management strategies into their trading plan to protect their investments. Professional traders use different money management strategies along with their regular trading plan, and if you want to avoid a severe drawdown on your account, you probably will do it too. So, how do you best prepare for uncertainty?
Main article sections:
- Forex Money Management
- Cut losses short, let profits run
- What is Money Management in Forex Trading
- Intermarket correlation
- Compound Your Account
- Be careful with emotions
Forex Money Management
Forex money management tries to balance two things: restricting worst-case scenario losses to an acceptable level and maximising potential profits.
In other words, we are trying to avoid risking so much that you lose everything or are compelled to stop, OR trading so conservatively that most of your money is still in your wallet when you win.
Adequate Forex money management strategies allow you to keep trading through the bad stretches that will inevitably occur. There are many books written on the subject, often involving complicated mathematical analyses. However, the good news is that the best money management strategies can be simple.
As always, to succeed at trading you will need a complete trading plan that will tell you when to enter/exit, which currency pair to trade and how to manage your money.
So Forex money management is vitally important - and should be taken as a part of the complete trading plan. Below is a list of general guidelines that should be incorporated into a trading plan.