Knowing how to manage your money is what differentiates a professional trader from an amateur. Money management skills are necessary for all kind of traders, no matter what tools they use to trade; whether trading via technical analysis, fundamental analysis, core trading etc. The ability to understand the meaning of opening a position with high leverage can prevent great loss.
The most important question that every trader should ask himself is what is the biggest loss he can afford per trade/day. Although there is no absolute answer to this question, it shouldn't be more than 3-5 percent of the account's balance. By limiting the max loss, you ensure that your account will survive longer in the market.FOR EXAMPLE: let's say that your balance is $10,000 and you set a limit of 3% of the balance per trade. According to that rule, you would have to close the trade when the PnL is $300. That means that if you opened a trade of 1 lot in the EUR-USD, it will take just 30 pips before you had to close the trade. Bottom line: Do not use high leverages - this will be discussed further in coming articles.
The most important question that every trader should ask himself is what is the biggest loss he can afford per trade/day. Although there is no absolute answer to this question, it shouldn't be more than 3-5 percent of the account's balance. By limiting the max loss, you ensure that your account will survive longer in the market.FOR EXAMPLE: let's say that your balance is $10,000 and you set a limit of 3% of the balance per trade. According to that rule, you would have to close the trade when the PnL is $300. That means that if you opened a trade of 1 lot in the EUR-USD, it will take just 30 pips before you had to close the trade. Bottom line: Do not use high leverages - this will be discussed further in coming articles.