MONEY MANAGEMENT METHODS IN THE FOREX MARKET
Successful trading on the Forex market includes three components. First – the trading strategy used by traders, the second depends on how he manages his capital and the last part is the ability of traders to follow the rules, chosen by him, namely discipline.
Every trader must use money management. Traders must understand the opening and closing rules of the position for the successful application of money management methods and accurate mathematical understanding of the trade itself. He also had to have an idea about the results of testing the strategy at historical statistics.
If you have a strategy, which you have tested well, you can be sure that your income will be stable.
If you have a strategy, which you have tested well, you can be sure that your income will be stable. When a trader has a trading strategy, in order to increase trading results, he can confidently apply the money management method.
This technique includes the usual method, which is used by many traders. This means entering the market with one unit each time the beep system is input. This method has advantages and disadvantages.
Some features of this method are the same as the previous one, but the difference is in this case the trader opens several positions. Although the same, the type of money management has its own characteristics, which you must consider when trading on Forex.
When a trader decides, how much cash can be placed at risk while receiving a signal to open a position, he can use this type of money management. For example, traders can place 1000 USD under risk, for each signal to enter the market, but not more than that.
When the trader determines, what percentage of the total bill can be placed at risk in each signal given for the agreement, he uses a fixed percentage of capital. For example, a trader can set a risk of 5% of the total account in each trading signal for a transaction, but not more than that.
This method is often called the construction of the pyramid (up or down) or the forward and backward approach. In accordance with this method, traders determine trading volume after successful results. For example, after an unprofitable transaction to compensate for a loss, he can manage to double the trading volume after following the trading signal further. This strategy on the Forex market is also called “Martingale”.
Following this method, the trader determines the short or long movement of losses and the average profit from the transaction. If the short average exceeds the length, this indicates that the system works more perfectly than in the past. Based on this information, traders can start opening positions. If the short average is below the length, there is no need to start the transaction. Losses or profits from all signals to execute an order, whether or not carried out, are calculated by the average.
This approach has several risks, so its use is not recommended for beginners.
In addition, another important factor of money management is the method of Forex trading. This can be aggressive or conservative. Conservatives always increase deposits more slowly, but this is far more stable than a trader with an aggressive method. Choosing the right trading method directly affects the risks and benefits of trading.