Money Management

Hey traders! I was wondering what are some of your favorite money management methods. I read many books and they say how important money management is, more important than actual entries... Though I tried martingale, lost thousands doing that, I don't really like the increasing risk when you are losing methods...... But I also heard something called position sizing, like increasing your lots as you win, like add on lots as the trend goes? Things like that are interesting thanks guys!

Adding to your position is a subtle skill, If you don't know what you are doing you will get burned or taken out of your position by a temporary reaction. It can greatly improve your wins but again you should know what you are doing.Its not advisable to add to a position. Unless you are a master...cheers

On money management, It preserves the viability of an edge but if you don't have an edge you are better off without it.Why? cause its like you playing against a casino, the longer you play the more you will loose. Your best odds are to choose a currency, buy or sell and come back one year later- broke or in profits. But the longer you play the more the odds grow against you. To be frank the markets are very very hard, to find an edge and then to implement it.cheers

The most important management deals with your stop loss in relation to your risk. Knowing your risk on each trade.

After that, I always split my trade into 2 and take profit on one as soon as I think there's any type of reversal, and then I leave the other position going to get me up to 5-5-8% total for that trade.

This allows for your quick-cash-in mentality.

As far as adding positions, only if you are winning and see another entry do I think it's even worth a though unless you are an experienced vet, or it'll end up costing you three times what you want.

Along with money management, risk management also plays a vital role in earning through Forex Trading. We need to learn both of them, if we wanna become a successful trader.

If you're an itraday trader, risking above 1%/trade should be considered fun trading. not sustainable in the long term.

if you're a fun trader, money management is key , but anti-martingale and martingale variants are not the grail.. keep it in mind and you can build a profitable system.

Thanks you everyone for your insights

money management is a more step part:
1. you need to decide how to save you securities for what price. protected by security fund, by bond, shares (all whats out of risk by problems with broker) and calculate the costs for using as a margin
2. you need to decide what broker you need. if you trade so that even flash crashs cant hide you, you can put in all in 1 account and use the big advantages of this. if you trade higher risks, you need a broker , who dont let you pay negative balances...
3. you need to calculate your strategies. of course best is you have strategies with many many loss (of ofcourse a winning strategy!!), because calculations with only some losses have very little statistical value. if you have many losses you know on the end of the month, week, year how you are doing and you can trade on a little swinging line in equity.
4. from your strategy parameters you can then calculate your risks. you need to know profit and drawdown, nothing more. but only with many losses this will work ofcourse. so you dont need any luck.
then of ofcourse depends on your risk what you want loss max! you can define, you dont trade what can be your win on the end, you trade, what i want max have as drawdown or loss. thats the only parameter that decides all.
5. when you have this drawdown risk you can calculate lotsize for this (or percent of trade balance for variable lots).

many beginners make the mistakes to calculate all from wins, not from loss. or cant judge drawdown, because was only with 1-2 trades, without hundreds of losses i would not even use this strategy because of big chance of statistical calculation error.

6. then there are possible advanced possibilities like:
- use as max SL (what should be only reached in big fast moves you cant close earlier) what you have earned last month
- use inside the month what you have earned already, if its much higer then what you would risk normaly
- ....

7. summary: the overall goal should be to have a near line upwards in equity with a risk that you know you dont care about! ofcourse if you zoom in the line there will be zig zag, but if you zoom out there should be a near straight line.

First you need a good strategy and learn to execute without hesitation every trade, second you will need to split your account and invest pieces of it (not invest all the money at once) 2% risk of your money is good for every trade. Then you will need to make sure that you can get all the possible pips a move can make example, after the trade moves in your favor 50 pips close to break even, after 100 pips close your stops to +50 pips and trail this way until you hit stop loss. Try liquid pairs like GA, NC, CJ etc. where you can have the odds of big moves in your favor and don't forget, patience pays.

Hi FXtrader22,

First up, probably a good idea to abandon martingale style money management, you can get into serious difficulty that way and it offends the rather important principle of cutting your losers quickly.

Increasing the position as a winning trade progresses is the reverse, anti-martingale, and is a way to huge winners but you need a really good trend and very strong nerves to pull it off.

Overall, it's probably better to keep it simple until you are consistently profitable. By simple I mean just enter & exit the whole position in one go. The key position sizing here is to keep the trade small, i.e. only to lose a small % of the account at the stop if the trade goes wrong. And ALWAYS have a firm stop in place or you cannot do this as you cannot determine in advance what your maximum loss might be.

Manage that consistently and reliably and you are well on the way to comparatively safe, profitable trading. Good luck!

money management is important...but you must have a good psikology and discipline whitout that you will burn your account

i love compounding...averaging and hold position .

My money management rules:
Risk per trade:
1. Risk 1-2% if you have 50-60% win ratio
2. Risk 3-5% if you have 60-80% win ratio
3. Risk 10% if you have 85-90% wun ratio
4. Risk 20% if you have 95-100% win ratio

if you are day trader risk 2% per trade
if you trade on daily chart risk 5% per trade
if you trade on weekly chart risk 10-15% per trade

if you have more than 5 trades daily, risk 1-2% per trade

you can use hedging techniques and increase your win ratio.

my win ratio when I was 100% disciplined is 100%
but I trade only gold, oil and gbp/jpy
and only on gold and oil I can make 100% win ratio.
But I trade on daily chart and have 20-25 trades a year on gold with 100% win ratio.
And risk 20% per trade. This is how I can make big monthly returns.

Maybe this have your interest

Tnx for that. I love reading

I know money management is important as like all trades. But what actually money management in Forex ? can you explain more about ? just avoiding risk when market moves at random is money management ?

Hy banned, what I know about money management is not to get your money out when trading ... buy or sell just the same. Just a matter of time until your position profit .. that I know,Most theories about strategy even make us confused, keep it simple stupid

really, this sounds like its only a matter of time when you lost all your money, if this is your moneymanagement strategy.

You right...

Money management means using low risk reward ratio in every single position! Since, there is no guarantee in Forex pro traders using MM policies so seriously! In my trading, I take only 1% risk ratio in my per trade position, that is money management to me.