Safe Money Management – A Forex Traders Key To Success

No matter how successful a forex day trading strategy may be, you must practice sound money management to trade the forex successfully and more importantly to be around for the long haul! Anyone or any strategy can have a very profitable period . A time when you the trader feel unconquerable, you might even feel like all your forex woes have been solved ! But what usually comes next? Unavoidably you experience a series of losses as any system does. You see, even with a 75% win ratio you can still conceivably have ten losing trades or more in a row. When you flip a coin the prior outcome does not have a bearing on the next, neither do prior trade outcomes dictate the odds on the next trade, it is in fact completely separate from all previous trades. With this knowledge you have to prepare for the worst, you have to be around long enough to realize your dreams of making a living in the forex market and the key to that is safe money management.

So lets discuss safe money management as it applies to day trading forex . Without a doubt the first step is selecting an appropriate risk per trade the fits you and your trading style . Most full-time forex traders recommend risking no more than 2% of your account value on any one given trade setup . So if you have a 10K account you would risk no more than $200 on any one trade setup. If you are getting into a trade and need a 20 pip stop loss you can safely use 1 standard lot (20 pips X $10 per pip = $200). If you are using a 40 pip stop the lot size would be cut in half from the previous example to 5 mini lots and you would still have the same 2% risk (40 pips X $5 per pip = $200).

Let’s discuss now the mental effect of forex trading and how proper money management plays a role in your trading decisions. Using a proper risk per trade such as 2% enables a trader to be emotionally disconnected from any one given trade, thus allowing you to make wise decisions on your entries and exits which dramatically improves your chances of making a profitable trade as well as managing it properly . It also allows you to work through the draw downs with the confidence to stick to the rules of your strategy, knowing that the correct money management will pull you out , and allow the profitable system to get back to overall profit. Every forex trader goes through trades where they over leverage , only to see the trade go against them. Have you ever been there? Palms are sweating, your heart is beating 100 beats per minute, and heaven forbid you try to sleep! When you enter a trade with the knowledge that the worst thing that can happen is you lose 2% of your equity, you breathe a sigh of relief. Your head will be clear to examine the market for an entry , and just as important you will be able to manage a running trade without the emotions of excessive fear and greed clouding your judgement . You see money management not only protects your forex trading account, it allows you to make logical trading decisions based on your forex trading strategy not fear, and thus increases your potential for profit.

Above all the entire goal of most everyone who begins to trade in the forex market is to make this a full time career . Still there are some that simply want to supplement their income. No matter what category you fall into, you no doubt want long term success in the forex market, not simply a lucky month or two . You can however enter trades with high risk and think of this market as a get rich quick scheme but I can assure you, this way of trading forex will lead to the fast demise of your trading account. You will be able to day trade and scalp the forex market for years to come , so why try to hurry it with extreme leverage when you can profit slowly overtime and actually give yourself a chance of becomming successful? Patience will enable you to apply the proper money management and will catapult you toward consistant success in the long run! For more information on learning how to day trade the forex market,