One can never emphasize enough the importance of money management skills. No matter if we are talking about taking care of your personal finances or choosing the right size for a trade - money management will always guarantee a better, more rational decision.
Below, FortFS experts put together find six tips to improve your money management skills in Forex:
1. Your Risk Capital As A %
Taking the right amount of risk when trading will already put you a step ahead of others. Start by limiting your positions’ size in 2% of your total investment capital.
2. Leave Aggressiveness For The Gym
Don’t be mistaken. You can act like a bull or a bear on the street, but you should trade as rocket scientist. The point is simple: being aggressive makes you susceptible to mistakes and therefore, exposes you to higher risks. Try keeping your nerves down and a cold head. That’s the mindset you should embrace from now on.
Adjust the position size to the volatility level of the pair you are trading. For instance, a more volatile pair will demand smaller positions to keep risks under control.
3. Don’t Lie To Yourself
Aggressiveness is a big issue in this industry. Why do you think traders are aggressive? Especially young ones. Well, several studies have shown than the answer relies on poor goal setting. Many traders come into Forex with the idea of becoming millionaires from day to night. Not gonna happen, not to mention it if you are starting with $50 on your account.
Try it out. Understand how much you can generate in a single day of trading. Multiple it by 20 working sessions and be aware of changes. You’ll have a monthly goal.
4. Cut The Losses
No mystery here. The basic rule: let gains run, cut the losses. If you were wrong, don’t wait for miracles. Jesus is simply not coming. Better close the position, assimilate your mistake, understand it, embrace it and move forward with a renewed Forex soul (or balance).
5. Shit Happens
Never better put. Alright, so… the market turned around suddenly and your positions were executed at stop losss levels. Feeling bad? Think of the ones who haven’t set SL orders. Better…? We can work as hard as possible but the market lives on its own and you should understand that. Be ready for changes and always cover yourself with SL. If things go south, at least you’ll not blow your account in full.
6. Envisage Exit Points Before Entering a Position
In order to keep it pragmatic. When setting an entering position, think of a possible exit level target level too. That will help you keep your trading systematic and a bit less risky. Remember, scientist, not boxer.
Hope these tips were helpful.
Keep it up. Good trading!