Forex Money Management - The Key to Making Huge Profits 5 Tips For Bigger Profits
By: Samuel Berkovits
If you want to win at Forex trading you need to protect what you have keep losses small and run big profits while this may sound obvious most traders treat money management as an after thought and not a key to success. Here are some proven money management tips to help you win...
Preserving what you have is vital to your success, lose 50% of your account and you have to make 100% just too breakeven! So let's look at how to preserve equity, keep losses small and run big profits.
1. Learn the 80 - 20 Rule
The 80 - 20 rule is used in many areas of life and in business sales it says 80% of profits normally come from just 20% of clients. In Forex Trading 80% of profits come from 20% of trades and this means the first way to help preserve equity is get rid of low odds trades!
Most traders trade too much. You don't get paid for trading often, you get paid for being right. By being patient and just focusing on high odds trades, you will remove a lot of the inevitable losers.
I know traders who trade just once a month and make triple digit gains and trading less is sound advice for most traders.
2. Don't Place Stops in Market Noise
Most traders think they can trade with very close stops and they place them within daily volatility and lose. If you place a stop within the normal movement of the market, it may appear you have low risk but your odds on getting stopped out are high as probability is against you.
Most traders try so hard to restrict risk, they actually create it!
You need to place your stop outside of daily ranges and behind strong levels of support or resistance and while it may look like your taking more risk your not - as in terms of probability your potential gain is bigger.
3. Risk Meaningful Amounts
We all know we are going to have small losses so we need to cover them and this means risking an amount that makes a difference. If you are going risk 2% on $1,000 account that's just $20.00 and you won't make much on that! Risk 10- 20% on high odds trades and have the courage of your conviction. This isn't being rash it's just risking enough to make enough to make it worthwhile.
4. Trail stops Slowly
Most traders get so excited when they have some profit they want to lock it in but this is a huge mistake. If you are in a big trend, make sure you trail stop outside market noise and accept short term losses in open equity to seek a bigger long term gain.
5. View Overall Account Performance
If you are doing well you can risk more and when you are doing badly risk less. Just as a good poker player varies his bet size so to does a good currency trader vary trading risk.
To Win and Stay in the Game
Most traders trade to much take low odds trades and risk too little and are guaranteed to lose. The savvy trader trades less, trades higher odds trades and risks a bit more, so that his probability of success is higher.
Forex trading involves risk and you must take meaningful risks, to make big gains. If you don't you will suffer a slow erosion of equity and never catch a big trend and that means losses.
The tips enclosed work will preserve equity and help you hit and hold the big trends, use them and you will enjoy greater currency trading success.
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