Money Management Notes

Always bear in mind that some unforeseen event such as a natural disaster, war or sudden death of a political leader could throw the entire market into confusion. You can succeed without being the ideal technical researcher but you cannot earn money with world forex trading without understanding risk management. All systems have their swings and roundabouts and if your risk is too high, your account balance won’t be able to recover from the downs.

On the other hand, if your leverage is too low, you will not make much money even from a profitable system. And if your stop loss is too close to your entry point, it’ll be caused too shortly. It is dependent on drawdown and average profit or loss per trade, but a good rough rule is to chance between 1% and five percent of your funds on each trade. Only take the higher figure if losing your entire balance would not be a tragedy. Often, the more money a trader has in their account, the more careful they are with it. Some traders consider that having a set risk per trade is too rigid and the risk should depend on the power of a signal. That is fine as long as the variable risk is still defined according to the system. What you need to avoid is varying the risk dependent on intuition, or dependent on the result you had from the last trade.