Investing in Forex is risky, as only the few succeed. But more and more people are investing, providing us with a lot of data from which we can learn who succeeds and why. As such, there are many proven ways to improve your trading performance.
The following 10 Forex money management tips are some of the most important pieces of advice provided by successful traders. Take note of them, and be sure to work them into your trading strategy.
- Make sure you have enough capital
The one prerequisite for trading in any market is, obviously, that you have money to invest. But you need significantly more than the value of your first investment, or any losses will be decisive. It is recommended to have capital for at least 40 trades, and not to risk more than 3% on each trade.
- Invest with risk capital
Risk capital is money that you’re specifically able to set aside for investment purposes. Trading should not be done with the money you require to live on a day-to-day basis. Rather, you should determine how much you’re realistically able to lose, and make that your risk capital.
- Implement a stop loss before buying
A stop loss is an order to sell if your investment drops to a certain price. Since you may become attached to a certain trade, it’s vital beforehand to determine what how much a trade can realistically drop before you have to get out.
- Controlled leverage
The more leverage you have, the more you can earn. But you’re also liable to lose a lot more. Although it’s tempting to go for the highest leverage you’re offered, make sure it fits into your overall capacity for risk, and that the particular trade is not too much of a gamble.
- Use rationale, not emotion
While it’s impossible to cut out all emotional bias, you need to do your best to ensure that emotion is not playing too much of a role in your trade activity. Stopping to reflect rationally before making impulsive decisions, can ultimately save you from major losses. It’s a good idea to find out about trading psychology.
- Accept all outcomes
You need a steady mind to become a successful trader, and nothing compromises stability as much as believing that every trade needs to succeed. You need to accept that you’ll have to face a fair amount of losses, otherwise you’ll end up anxiety-ridden and prone to make those impulsive decisions.
- Become a risk manager
A corollary of the above, is that you must determine the risks you’re ready to take, and when you need to take a step back. If you have a good risk strategy in place, losses will fit into your overall plan. Part of managing risk is in not over trading in Forex, which is common in investors with no plan.
- Setting position size and taking profit
An essential part of Forex trading. Systematically adjust and frame a positions chart, adjust the pips and minutes chart according to your desired value, and follow through.
- Communicate and be realistic
To be a successful trader, you need to be in touch with market sentiment, and that means communicating efficiently with other traders. Work according to that, and don’t be greedy.
- Cut your losses and add on profits
Although you’ll want to wait until you retrieve your losses, cut any trade that’s losing you money. Instead, invest in new trades likely to bring in profit.