Money management is one of the ways to maintain the trader’s longevity in the Forex market. Even if you are technically skilled, you will still end up with different kinds of errors if you have poor management skills. Money management involves managing leverage and risk. For the leverage part, it is the one that possesses the greatest danger. Even if you have a win rate of 80%, if you have poor money management on the 20% part, there’s still a possibility of getting your account wiped out. But a trader with a win rate of 60% and strong money management skills will still be profitable.
Proper management of your trading funds will remain a work in progress. It is further determined by experience, preparation, discipline, emotional control, and prudence. Check out these 7 money management tips that you can use in trading.
Have a Stop Loss
Just as its name suggests, stop loss stops your account from acquiring huge losses. As you already know, losses are very common in trading. Leverage and volatility contribute to these losses. But most of all, traders who aren’t very experienced in this field tend to get more losses than the ones who are already in the field for quite some time.
Since you cannot avoid losses, all you can do is stop it from wiping your account. A stop loss is very helpful because it automatically stops a trade when the parameter is reached. Use a stop loss at the start of your trade. There are also a lot of useful trading tools that you can get from MyFXBook.
Trades With a Good Risk-Reward Ratio
In your trading plan, you must determine your preferred risk-reward ratio. Typically, a risk-reward is the comparison of the potential loss against the potential profit. The ideal risk-reward ratio would be 2 to 1. However, there are still other factors to consider. Take for instance the volatility of the market. Make sure not to trade the market if there is scheduled financial news that could affect the price movements.
Avoid Risky Trades
Without taking a risk, you won’t profit in the market. But taking too many risks will endanger your account. Especially if you are new to the market and yet to implement a strong risk management strategy, it is wise to choose low-risk trades to ensure that you won’t encounter trades that might wipe out your account. Remember, you are trading because you want to earn and not to lose more than you earn.
Take a Break
There will always be a bad trading day. During these times, you will feel a surge in emotions. Mostly, you will want to take revenge to take back what you’ve lost. Is revenge trading really good for you? Certainly not. Revenge trading will gather emotions that are not very useful in trading. When this happens, take a break and move away from your monitor. There’s still another day to earn. Don’t trade out of emotions.
Stick To Your Trading Plan
The importance of a trading plan will only be appreciated once you suffer from big losses. This goes the same with trading tools from MyFXBook, you only see their importance after suffering a big blow on your account. A trading plan is something like a roadmap that will keep you in the right direction. Create one and always stick to it.