No Battle with the Market without a Money Management System

No Battle with the Market without a Money Management System

Submitted by adil on Mon, 01/12/2015 - 08:22

Tagged as: General , Forex Trading

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The market is a battle field and it would be insane if you enter this field without the right ammunition. A proper money management system is what you need for this. This system has to be compatible with your trading strategy and flexible enough to adapt to market fluctuations.

What is the most important thing for a trader? What is the foremost goal in trading? It is: lose as less as possible and make as much profits as possible. The profits should be bigger than the risks. You have to work the risk and reward ratio in your favor but it will be in your favor only if you use a proper money management system. This way even if your losing trades are more than winning ones, your profit will be high.

Here are a few important points which will help you in making good trades with a money management system:

Lower the risk if you do not trust your setup. But you will still remain in the market in case it turns out to be a good trade.

If you trust a certain setup, risk more. It is okay to make mistakes sometimes and it is also important to risk more. You will become experienced and get better at this with time.

Your trading instruments play a good part in your risk-making decision. Adjust your risks according to the instability of the instruments.

‘Scale in’ i.e. add more volume to your trades when the setup is assuring and the market signals are clear and in favor of your trade. It is an interesting way to close with heavy profits.

Scale out if the signals tell you the market is not going to be in your favor. But also leave some space for the market to reach you just in case.

If new signals are appearing, adjust your take profits and your stops.

Be prepared to handle the trades manually in case of any strong move in the market. So you should have a limited number of open positions. Do not surpass the hard limit of eight open positions for a single person. Five or six can be a very reasonable number for a trader.

Understand the volatility of the market you are trading in. volatility is constantly changing so be prepared of the ups and downs and adjust your risk accordingly.

Make sure you have enough capital to carry out the trades. Build adequate capital and start taking risks. Only then you can be successful the way you want to.

Be prepared to lose money. And know how to control your emotional self. The psychological effects of losing money can be bad so you must know what you are getting into.

Trading is not a rocket science. The one and only goal is to make money, so think outside the box and follow the list I mentioned above. It can be exhausting but you will thank yourself for all this one day.