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Top 10 Forex Money Management Tips that Actually Works

It is natural for forex traders to have some kind of positive expectations when it comes to successful trading systems. What these expectations refer to is that the systems that are successful are sure to make money sooner or later. Yes, it’s not possible to make money while trading all the time. Occasionally, you may have to deal with a loss. This is something every forex trader must understand and learn to cope with. The whole idea is to keep trading with an understanding that you will make money in the long run and there are no shortcuts involved in this process! This is where the nuances of forex money management come into the picture.

Successful and proven forex money management tips help you trade through tough times that you may face regularly while trading. There are a number of books involving complicated mathematical analysis that have been written on this subject. However, you need to understand that money management tips and tricks can also be simple. A complete trading plan is what you need to have a successful trade. What this plan will suggest you is suggest an entry point and an exit point while trading. Though these plans it is possible to manage your money wisely.

Forex money management, like working out and dieting, is something most traders pay very little importance to. This is because like staying fit and eating healthy, managing forex money can quickly become an unpleasant activity or burdensome. This forces most young and inexperienced traders to monitor their positions quite regularly and makes unnecessary losses. However, one needs to understand that for long-term trading success, it is important to take short-term losses in the stride.


Here are some of the top forex money management tips that can actually work for you:

1. Do not aggressively trade
New traders often make the mistake of trading aggressively and instinctively, especially in the beginning. Therefore, your plan has to be in trading with a proper plan and calmness. You also need to understand that your trading involves a lot of risks if a large part of risk capital gets eradicated as a consequence of small sequences of losses.

In order to get your aim right for adjusting to the risks involved, your position size need has to be able to reflect your trading pair’s volatility. However, you will also need to remember that a smaller position is demanded only by a volatile currency as opposed to a less volatile pair.
A number of charts and tools can be made use of by forex traders to become aware of average pip movements for a given time frame. These tools and charts are also beneficial in measuring the expected volatility.
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2. Quantifying your risk capital
This is the key value based on which a number of important money management aspects are based. For example, your position’s upper limit can be determined by considering the size of your risk capital. You may consider it wise to risk up to 2% of your total risk capital.

3. be frank in admitting you have made a trading mistake
One of the major secrets of trading in the forex market is that you need to keep running your profits and cut losses as much as possible. When there is clear evidence that your trade move is wrong or you have made a wrong decision, you need to exit it as soon as possible. It is a natural tendency of most traders to try and turn a bad situation into a good one, but this attempt can prove costly in forex trading. You need to admit that you have made a trading mistake when there is a losing situation. When you admit this and make necessary changes, you can curtail losses before they turn humungous.



4. be realistic
A majority of new traders have high expectations when they enter the forex market. A vast majority of them believe that trading aggressively will make them richer. However, the approach of seasoned or experienced traders is usually different. They do not rush into the things and make steady returns. It is only after a few years that their profits become large. Compounded returns are not seen if you blow up quickly. When you start trading you need to have a slightly conservative approach and set realistic goals.

5. Prepare for the worst
It is impossible to predict the future of forex market, but we have lots of data and information about the market’s past. No doubt, the future might not see what the past has seen. However, you can always look back at the past performance of the market and take an idea. When you look back at the markets carefully, you will surely notice the price moves and this will make you think about the worst trading scenario for trading. Think of strategies you may have to come up with if you were confronted with such a situation yourself. In any case, you should not underestimate the price shocks occurring to you. You always need to have a plan ready for contingency.

6. Envisage risk versus reward position
Before entering a position you need to think of levels on the upside as well as on the lower side to withstand losses. At the end of the day, you need to maintain a certain level of discipline to ensure you do not get carried away in the heat of the trade. What this also does is contemplate risk versus reward factor.

7. Do not go about trading on tilt
Chances are that you may run into a loss or lose an appreciable portion of risk capital at some point in time. There could be a small amount of temptation lurking in your head to make it up for the losses by winning back all the losses in the next trade. However, the real problem begins here, when you try recovering the losses you just incurred. Risking your risk capital that has already taken a beating in the trade will make the matter even worse for you.
Instead, you can always follow another procedure. Consider reducing your trading size or consider taking a temporary break, especially when you are feeling low or feel the trade has really turned volatile. You need to learn to wait for a profitable trade to kick-on. It is important that you stay on an even keel, in terms of position sizes as well as emotionally.

8. Make use of any kind of stop
You need to employ stops of any kind to cut the losses that can mount sharply in the shortest possible time. This is especially so when you are not able to monitor the progress of the forex market. If you are not able to set a physical stop during the trading hours, then the least you can do is employ a mental stop. This should help you have control over your actual orders. You may also consider setting price alerts if you find them helpful.

9. Understand your leverage and respect it
Among many benefits you can look forward to trading forex is leverage ratios. Using leverage you can take a forex position that is of much higher value than your deposited capital. A higher leverage ratio also means that you can maximize your profits from the limited risk capital you have. However, you need to be aware of the fact that with higher leverage ratios, the risk potential also increases substantially. Leverage is nothing but a powerful tool whose potential should be understood before its usage.

10. Do not ignore rules of your system or bend it
Irrespective of the trading system used, the success or failure of it has to be gauged by its performance over a long period of time. Giving too much of importance to the system’s short-term failure or success should be avoided. Therefore, the key is to stop ignoring the rules of your system or bending them unnecessarily, just to make your trade work currently.
All forex traders need to understand a simple fact that successful trading strategy is not trading is all about. To be successful in trading in the forex market, you need to stay long enough in the game for any strategy to work for you. As is with other aspects of trading, the strategy that will work for you will depend on your preference. There are traders who like to take more risks than others. However, these are experienced traders generally. Novice traders, on the other hand, need to use robust trading tips mentioned above to start off in the forex market in a conservative way.
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