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Forex Morning Trade System |
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5 Money management |
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Money (or risk) management is the most important part of the trading, MM is what will determine if you will make money or lose them in the end. |
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There is a saying that the only thing the trader can control is his risk. You cannot control the market, or where the price will go, the only thing you can really control is how much you risk in one trade. If you'll risk too much, you can win a lot but you can also lose a lot. Trading is not a gambling, it is a business. You should take the long term view of trading, not the get-rich-quick approach. |
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Rule1 Always use Stop Loss. |
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Stop Loss (SL) is an order that will tell the system to cancel the trade at the given loss, if the market is going against us. This way it protects us by keeping our loses defined and small. Trading without SL or moving SL will eventually lead to account wipeout. |
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If the market is going against us, we should simply accept the small loss and quit the trade. All trading systems are based on probability or some edge. There is no system that will only win. Losses are a part of the trading, and what matters is the positive result at the end of the month or year, not today's loss. |
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Forex Morning Trade System uses fixed Stop Loss of 40 pips, so you will never lose more than 40 pips on one trade. |
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Rule2 The general rule for any system is to NOT risk more than 2 % of your trading account on one trade. |
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This means that if you have account with $2,000 capital, you should risk maximum 2% of it on one trade, which is $40. |
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Because our Stop Loss is always 40 pips, you can trade Forex Morning Trade with 0.1 standard lot (which is 1 minilot, and 1 pip is $1). |
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If you have account with $ 10,000 capital, your 2 % risk is $200. Because our Stop Loss is always 40 pips, you can compute the lots size using the formula: Minilots = (risked amount) / (SL in pips). In our case: $200/40 pips = 5 minilots (which is 0.5 standard lots and 1 pip equals to $5) |
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So, with $10,000 capital and trading 0.5 lots, if Forex Morning Trade System wins, you'll earn $200, if it loses, you lose $200. |
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A good rule to remember: if I use 0.1 lot, then 1 pip = $1. If I use 0.2 lots, then 1 pip = $2 and so on. |
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24 |
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