In any case but an idea and its realization should be able to properly manage the available funds in existence. In this paper we consider some important points that relate to money management when trading forex. In any normal book on forex, this topic is at the end of the book, and if the reader came to her, then looks at her just for show. And it is an important component of any business, not just forex. Money management is an art. That is what needs to be given maximum attention, but the analysis of price and its prediction is of secondary importance. You can trade successfully, without making any analysis, as they say to enter the market by “bulldozer.” From any losing trades can come up with a plus if resources permit. Because the actual lives and felt that the forex must come with a good capital. But let us all in order.
The first rule to keep in mind, it is also called the “golden rule”. Since Forex is an investment, it is generally Wealth Management says, “do not put all your eggs in one basket.” Let’s look at this moment does not last long. Of rules that should not invest all your money into one thing, but in many, but a little bit. The easiest option to implement this plan on forex, it’s open to a deal on one pair. Since most currencies are all pegged to the dollar, then the signal to enter on one pair of duplicated and others. But in this case, what may be the results? Suppose that we were wrong, then we make a mistake on all cylinders, and the money will go everywhere in the negative. All losses in one basket. In this case, it’s not something that usually asks. There is a second option, you can open two or more accounts and trade on different pairs. Then it will be more like the truth. But the ideal is, of course, different markets. You can open an account on forex and stock, while working with profitable orders can get a good profit. Even better would be if exchange trade is not the only source of income, I mean the return on investment. You can make contributions to other accounts, banks, credit unions (not advised) and profit from multiple sources. In this case, loss of money from one source will not have a catastrophic effect on your life.
Money management is the second rule applies directly to the risk of the trade. It is believed that the risk for comfortable operation of a deal should not exceed 3%, less is better. Let’s count. For example, you have a normal account with access to forex and is $ 10 000. Then the risk of 3% is $ 300. The price points under this account is $ 10 and a standard spread of 5 points. So you can enter the market with a stop at 25 points. If we consider that the price per day goes 100 – 150 points, then your transaction will take off just at the noise, I’m not talking about the kickbacks and the peaks of the news. This problem is solved in two ways. The first is to increase the size of the deposit. In our case, if we increase the deposit by 4 times, then it will install a stop at 115 points. This is a good chance that he stop and not fly off. A second option is to abandon the real forex and go to the broker, who will work on a mini forex lot with 0.1. In this case, the price point will be one dollar and $ 300 dollars you can put a stop to 300 points. And you can bet, and at about 100 points, bringing the risk of a deal to 1%. You can of course leave everything as is and put a stop to the tolerable 70-80 points. In this case, the risk for one trade will equal close to 10 percent. This means that if you at least 5 times wrong, then half of your deposit will be gone. The second half will be gone just because you start to twitch nervously, and enter into the market already, which came with fear and less to jump out of it.
Next I would like to write a few lines of the balance of risk and profit. It is recommended to take at least 1:2. This means that if your stop is 100 pips, the profit should reach 200 points or more. It should be noted that this praviloUpravlenie capital should be used without fanaticism. If you make a profit at 1000 points, then the price will not come to him immediately, but with setbacks and reversals that ultimately frustrate your protective stop. Therefore, you should choose a middle ground. And the ratio you want to save for the safety and profits to pick up. If the circuit protective stop, you do not care where your profit. Let’s work with numbers. Suppose the average volatility for the pair on the hourly chart 100. The probability that we will go up or down is very small, so you should expect 70-80 percent of the movement. For ease of calculation we assume the movement of currency per day for 120 points, and the working range of 90 points. Then, when entering the market, we need to put a stop to 30 points and diamonds, and a profit of 60. This calculation is shown as an example, I repeat, too little stop is a slow way to lose money.
Here we presented the main ideas and capital management, let us now analyze specifically the installation of protective stop. We remember that it should not exceed a certain value, but not always a good idea to use the full potential. If we can put MM stop at 300 points, there is no reason to do this and then 2 days to wait until the stop or run for a week until the price goes in the plus. Dwell on the fact that MM gives us the best possible protective stop.
Money Management Setting the protective stop is an art and this is probably the hardest thing in stock trading. What can we say clever books on this subject? The books say, place a stop at a barrier. If the transaction for the purchase, the stop should be placed after the last minimum plus 2-3 points. If the transaction to sell, to put a stop to the last maximum, respectively. You can also place stops at or lines of support over the lines of resistance. And there are a lot of advice. Let’s think, and how much it is rational.
If there are prerequisites to buy and close a minimum, the idea of clever books, under this minimum should be a protective stop. Naturally think this way, all newcomers, and there they will place their feet is mandatory. But these books to read, and perhaps are the authors of major financial institutions, and they naturally assume that the minimum order is a lot of defensive stops. And since they have good facilities, even without collusion, they all have their own intelligence, their task is not complicated. They need to drag the price up to these stops, they actually do. Then start to operate the foot of traders, pushing prices down further, then these investors and close short positions and buy a cheap financial instrument. Well, after simpler, the market recovers, sdvinuvshis slightly upward, and these rich uncle close their positions on the purchase. Thus, controlling large capital displacing the market for a short distance, they earn good money. When such things happen in the market are seen false breakouts. So, based on the above was written we can conclude that to put a stop where it put the rest is not necessary. Protective stop should be located either near or place it where it will not reach market noise and random signals.
I should add one more common mistake is the transfer of protective stop in the direction of increasing risk. Here a purely psychological reason, nobody wants to suffer losses. But when the price approaches the stop, the trader under psychological pressure and decisions are not weighted. If you have already set foot in a certain place, it means that this was the cause. Stop can be moved only in passing in the transaction plus. But here, we should not forget about the noise. It may happen that the pullback will give you your 5 points and then turn around and go in your direction. However, the trader is always balancing between potential losses and gains.
And at the end of the paper touch the last item of capital management, it is not important in terms of survival in the market, although there may be to argue, but it is important for earnings. We did not come into the market to survive, the main goal is to earn money deneg.Upravlenie Suppose our transaction profit, profit, we have put on 150 points, we now have 60. Of course you can sit and enjoy, if you run for profit, we’ll get your 150 points and be happy. But here we have a chance to build a winning position at 60 doubling the amount of the transaction, and moving in the middle of a two foot between orders. If we do so, the protective order would be in a position bezubytka. When triggering stop orders both cancel each other out, but if the profit going to work, our profit will be 150 +150-60 = 240 points. This technique can be performed an unlimited number of times the main ensure that the stop was far enough away from the price and brought it to fire a minimum of zero. This is a dangerous technique, it is dangerous because it stop all the time is approaching and the price instead of 150 pips and you can get a zero. Here the trader decides he should try to squeeze out of the market in excess of profit or not worth it.
Capital management The second method is more dangerous than the first. It is called the averaging of the transaction. They should use very carefully, and remember that it can lead to loss of money. But he has, and plus, it will turn into a lucrative money-losing deal. Consider a simple example. Let’s say we bought at a price of 1.50 euros, while its price fell to 1.40. In this case, intelligent book recommended to get out of the deal and look for another entry point, but there is another option. You can strengthen our trading position and buy the same amount at a price of 1.40 euros. Then, knowing that the market does rollbacks, and rollback of 50 percent is very realistic, we put the profits of both orders equally between the two transactions and rollback, and activation of both the profit of the transaction offset each other, the result will be zero. It was possible to strengthen the position of a double volume, then the zero profit approach and roll back 30 percent give the same zero, and the rollback of 50 percent will return. I repeat, this method is very dangerous, but it will give you the opportunity to get rid of the stops protecting. Here, each trader must decide for himself, however, as always. History knows of cases where traders lose their money and without averaging, using only the feet. There still should be noted that in the beginning of the crisis, the fall rate was for one day a few thousand points, and all who have not used the foot, and averaged, lost their money. You can certainly mix and, to put a stop to the maximum possible distance, and before its onset can be averaged to try and come up with a profit. We should not forget that the average transaction volume is growing and triggering stop loss will be greater.
In conclusion, we noted a moment. Some people believe that the art of money management makes a losing strategy for profitable, then maybe you should not spend time on the prediction of currency movements, but should simply learn to use the money? Everyone should himself answer this question.