Money Management: What Are The Rules of Proper Risk Control?

So you want to know what it takes to be a good trader.

Surprisingly most new traders jump on the forex market with no specific plan thinking that they will make thousands of Dollars in record time. You see trading is not that easy of a job. Yes it is a job, not a leisurely activity but simply a job which needs to have some strategic plan in place so that it may be performed properly.

In my early days of trading I did a common mistake that most new traders tend to be a prey of, which was ignoring my Money management rules. This one mistake was the cause of my failure in the currency market.

Quite surprisingly, being a good trader doesn’t require having an awesome system that wins 95% of the time. A lot of new traders get caught up in the hype of the amount of money they can make and forget about the proper trading size they should use per trade. This major mistake causes a lot of traders to blow their whole account in a matter of days. Simply because they ignored the Money Management rule.

Remember that trading is based to some extent on probability. With proper Money Management rules you will be in the game long enough to may be double or triple your account in a matter of months.

To make things easier, I have outlined those critical Money Management rules below.

* Only risk 2% of your total account on any single day. If your system gives you 5 different trades, make sure that the 2% is distributed over the 5 trades respectively.

* Your trading size should be less than 1/10th of your account size.

* Take partial profit each time you reach an area of heavy support/resistance. Once this is done bring your Stop Loss to Break-Even thus protecting you from any unpleasant surprises.

* Always use a decent Stop Loss so that you are not thrown out of the market too quickly. I use a 15 minutes chart to access my SL when I trade off a 5 minutes time frame.

Those rules are ridiculously simple but heavily ignored by many new comers in the trading world. Following the critical points stated above will greatly help you in your trading. This will undoubtedly keep you in the game long enough to be profitable.

Below is a sample of trading lots you should be familiar with:

1 Lot = 100.000 Units of a currency. Pip value = 10 Dollar

0.1 Lot = 10.000 Units of a currency. Pip value = 1 Dollar

0.01 Lot = 1.000 Units of a currency. Pip value = 0.1 Dollar

Risking only 2% of your total equity will result in you having to pick the right lot size to trade.

For more information on how to become a super successful Forex trader, read my full review of Top Dog Trading and Candle Charts and grab your copy of FREE Forex Video Courses.