What % Of My Total Account Should I Risk Per Trade?
Nov 11, 2009 currency trading
So you want to know what it takes to be a good trader.
Amazingly most traders do not have a single clue when it comes to the Money Management rules. Not surprisingly, most of them will end up losing their whole account in matter of days. I was one of them too, until I found the real cause of all my problems.
I knew that trading was no rocket science but still I could not make a decent profit on the market. This is until I stumble upon one crucial part of my trading that I was always neglecting, my Money management rules. Once I started following those simple rules that are outlined below, my trading took a dramatic change.
Forex over the past few years has attracted a lot of new comers to this market. This major interest in the foreign exchange market has been driven by the massive amount of money someone can potentially make trading the Fx market. This desire to make money within a click of a button has been a major trigger to get so many people interested in forex. However, due to the fact that most new comers are blind folded by the amount of money to be made, they forget the one crucial thing every professional traders follow. The money management rule.
Money management is in other words the back bone of your trading. Having well thought rules and sticking to them will help you stay in the FX arena for longer. Bear in mind that trading is to some extent a game of probability, a reason why to have a good money management rule in place.
Below are some of the critical rules you should abide too in order to survive the currency market.
* Only risk 2% of your total account on any single day. If your system gives you 5 different trades, make sure that the 2% is distributed over the 5 trades respectively.
* Your trading size should be less than 1/10th of your account size.
* Always use a Stop Loss when trading. Remember to place your SL at a decent swing low/high so that you do not get thrown out of the market too early by some stop-hunters.
* Always use a decent Stop Loss so that you are not thrown out of the market too quickly. I use a 15 minutes chart to access my SL when I trade off a 5 minutes time frame.
Those rules are ridiculously simple but heavily ignored by many new comers in the trading world. Following the critical points stated above will greatly help you in your trading. This will undoubtedly keep you in the game long enough to be profitable.
The table below will help you have a clearer idea of lots sizes:
1 Lot = 100.000 Units of a currency. Pip value = 10 Dollar
0.1 Lot = 10.000 Units of a currency. Pip value = 1 Dollar
0.01 Lot = 1.000 Units of a currency. Pip value = 0.1 Dollar
Taking into consideration that you are risking only 2% of your total trading account, your next step will be to pick the right lot size to suit your risk level.
For more information on how to become a super successful Forex trader, read my full review of Top Dog Trading and Candle Charts and grab your copy of FREE Forex Video Courses.
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Tags: currency trading, finance, forex, investing, investment, money, trading
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