Money management is already described in all possible ways and it is one of the most important aspects of trading in markets. Generally money management exists in all sorts of businesses where money is involved. In fact, every family has some sort of money management, every single person has their own ideas about it. Our business is trading and thus money management takes an important place.
It is important for the trader to have a good strategy, knowledge about the market and every trader must have money management rules. We are not money managers and our rules apply just to us, but we would like to share some ideas, as our practice shows, it could help you avoid premature closure of an account. Everything you will read here is only guidance, not suggestion in any way to follow our rules. You should spend time reading articles of the professional money managers and come up with your own some sort of rules. After that you must apply those rules in any situation, without an exception. Below is just "food" for the brains to think about.
Two main things you should consider while setting down some money management rules for yourself: size of the single transaction and how many instruments you are going to trade at the same time. Also you should consider the market you trade in. This website is for the FOREX market and we are going to talk just about this market.
FOREX is different from the stock or commodity future markets in many ways and we are not going to discuss those differences, but will try to bring your attention to the FOREX market features, concerning money management. In FOREX market we trade currency pairs: 7 of them are considered to be major pairs and rest of them are exotic or crosses with each other. All major pairs are linked with the US dollar, so main thing is to keep in mind is this: despite that there are seven currencies you always trade against one – the US dollar. So if you enter into the market on all those pairs, you are practically have 7 positions in one currency – US dollar. Even if on the screen it looks like there are many positions, the fall or advance of the dollar has a good chance to effect all positions. Do not forget that.
Next, if you trade cross rates, you should again pay attention, how many positions you have with the same currency. This is important as well, because the same currency could affect all your existing positions.
Now let's talk about size of the position. Many professional money managers have percentage rules how much money you should put into one trade and what size of risk you should allow yourself. All that information you can find in the internet and books, and because we are not money managers we are not going to give you that. But instead we will say this: think for yourself how much money you are going to risk on one trade. If you are putting all 100% of your capital, you are not a trader; simply you are gambler and you're better off staying away from FOREX and other markets. If you consider yourself as a trader, you should never ever risk even 50% of your capital on one trade. Think in this way: trader without capital is just an illusion. Allocate your capital in such way, that an open position will let you open another 4 positions and you will not use more than 50% of your capital. So, take your capital, divide it in half and divide one half into five equal parts. That is the maximum size of your one trade.
So, take your capital, divide it in half and divide one half into five equal parts. That is the maximum size of your one trade.
Please continue reading the next part for money management.
Komentarų nėra:
Rašyti komentarą