The 80 / 20 rule is simple and states:

That a small number of causes (20%) is responsible for a large percentage (80%) of the effect. The principle was named after the Italian economist Vilfredo Pareto, who noted that 80% of income in Italy was received by just 20% of the population. The value of the Pareto Principle in life and forex trading is – it tells you to focus on the 20 percent of your trading that really matters.

Most traders simply trade too much and the 20% that matters are really just the high odds trades – get rid of the marginal and low odds trades and trade high odds set ups only.

The fact is many traders think the more they trade the better and the more chance they have of enjoying currency trading success. Most try trading the market noise and try forex day trading or scalping – but they are doomed to failure and get wiped out. Trading profits are not correlated to how often you trade, as you are only judged on being right with your trading signal.

If you trade 100 times or twice all that matters is the amount of money you put in the bank from your market timing.

I know traders who trade just a few times a year and make somewhere between 100 – 200% just simply because they wait for high odds trades, hit them and hold them.

Trading less, is more time efficient and more profitable.

Look at any new traders account and they will be over trading and if you make the mistake of taking marginal trades you will lose.

Money management is all about protecting the account equity you a have and if you focus on high odds set ups only, you are going to increase your profit potential overall.

The 80 / 20 rule works in forex trading just as it does in all areas of life and if you use it in forex trading you will focusing on making money and that at the end of the day, is what forex trading is all about.

So think about it, apply it, watch your profits soar and your account equity risk decline and get on the road to currency trading success.

Source: http://EzineArticles.com/?expert=Kelly_Price

1. Trading invalid Time Frames

It doesn’t matter how good your system is, if the time frame is to short you are trying to trade in – you won’t win. Retail traders think they can cut risk by forex day trading or scalping, the theory is it means low risk.

The reality is it’s the highest risk form of trading because – daily volatility is random and your odds on to lose.

Don’t fall for the myth of people who try and tell you day trading works – it doesn’t sure, you see loads of simulated track records in hindsight from vendors but there is big difference between making money knowing the closing prices and not knowing them.

2. Cut Trading Frequency & Risk More

It’s a fact most traders think the more they trade the more they make however the opposite is true, trade to much and you end up taking risks on marginal trades…

The fact is you can trade less than a dozen times a year and make 100% + gains. You don’t get rewarded for frequency, you get rewarded for being right with your trading signal so, cut back your trading and then do this:

Risk as much as you can afford on the highs odds trades. Your better off risking 10 – 20% of your equity on these than the normal recommended 2 % on lots of marginal trades. Keep in mind if you don’t risk much you won’t make much, you need to take calculated risks at the right time – Now finally, and you need to avoid this:

Diversification! Sure it spreads your risk but in most instances it dilutes your gains to nothing on a small account. If you have a high odds trade you believe in don’t dilute your profit potential.

3. Stops within Random Volatility

Many traders want to restrict risk by locking in profit by trailing a stop – sound theory but the way NOT to do it is to put stops within random volatility. Don’t know what random volatility is? Then you need an understanding of standard deviation of price so make part of your essential forex education.

In essence you need to keep your stop far enough but to keep you in the trade yet close enough to protect you – most traders get this wrong. They trail there stop to close and rather than making a huge profit – they bank a marginal one.

When the big trends come around – you milk them not for hundreds but thousands or tens of thousands. Big trends are there – look at any forex chart your challenge is to turn them into profit.

If you thought this article was going to show you a way to take minuscule risks then you may be disappointed but the reality is:

Forex trading is high risk and your forex money management strategy should be all about taking calculated risks at the right time and making huge gains.

If you want low risk put your money on deposit – if you want to take calculated risks for triple digit gains, the above tips can help you.

Source: http://EzineArticles.com/?expert=Kelly_Price

This can be critical because even if you employ a successful trading strategy, you may still end up losing money if you are playing with high stakes that you can’t really afford. The worst thing you can do is to adopt a gambler’s mindset and open a large position when you are full of confidence about a particular set-up that may occur.

Sure you may get lucky and enjoy some huge winnings, particularly if you use a lot of leverage when opening the position. However it only takes a couple of losing trades to make a serious dent in your trading capital, and if you don’t employ any stop losses you could easily lose all of your money.

So the point is that it’s important that you forget about the idea of getting rich quick through forex trading. This is nothing more than gambling and it’s definitely not the most effective way of generating sustainable long-term wealth.

A more productive strategy is to try and build your trading pot slowly and steadily. As long as you are employing a tried and tested trading strategy, you should find that your account will grow nicely in the long run simply because the size of your positions will increase in accordance with your trading capital, providing you risk a certain percentage of your capital on each trading position.

For example if you are prepared to risk 5% of your trading capital on each set-up then you will be risking $500 per trade if you start off with $10,000. However if your account does well and goes up to $15,000, for instance, you will then be risking $750 per trade, so as a result your gains will go up as well whenever you experience some winning trades.

I don’t personally believe that you should risk as much as 5% on each trade. I think 3% is a more cautious and suitable amount because it then becomes much easier to absorb a handful of losing trades without making too much of a dent in your capital. We all strive to achieve a 100% success rate, but this is simply an unrealistic target, so it’s worth bearing in mind that you will have losing trades along the way so risking 3% of your capital is a sound strategy.

A very productive strategy is to let your winning trades run for as long as possible because this will automatically lower your required success ratio and it will also mean that your successful trades will be far in excess of your initial stake. For example if you are risking 3% of your money on each set-up, you may find that a trade that moves heavily in your favour could easily generate the equivalent of 6-10% of your overall bankroll.

So I think it’s worth making the point that it’s absolutely essential that you protect your trading capital and use a sensible staking plan when trading the forex markets. If you don’t do this you will end up gambling your hard-earned money away.

Source: http://EzineArticles.com/?expert=James_Woolley

First, I strongly recommend limiting your search to forex money manager programs with money back guarantees on them. The reasoning for this is that it’s both a sign of good faith from the publisher and evidence that they’re pushing a legitimate program, but at the same time it lets you move on to point number two.

Secondly, I recommend that you actually test the forex money manager program first hand. This is not nearly as difficult as it sounds as in testing a program all you’ve got to do is get it, then run it within the safe confines of a free practice account which you can get from any online broker’s site for free. Then you simply monitor the way the forex money manager trades and check its net gains or losses accordingly. The entire process just takes a few minutes of your time but can be invaluable in the long run. I’ve done this with dozens of programs and many publishers even encourage that you test their programs this way if they stand behind them enough.

Finally, think about sending the publisher a test e-mail in which you gauge their response time. You shouldn’t be dealing with anyone who doesn’t value your opinion of them and their product, and this is a great way to test just that.

Source: http://EzineArticles.com/?expert=Max_Branner

1. Examples of How Important Forex Money Management Systems Are

Let’s say for example that a person has a trading system that has generated 80% returns historically. He gets very excited and thinks that he can trade with big lots since the chances of winning trades is very high. However, he failed to consider the fact that he may start experiencing the 20% of losses first before he starts enjoying the 80% of winning trades. Without proper management rules, the trader may lose his entire account even before he starts profiting.

Another point to note is that a percentage loss first requires a bigger percentage win later to break even. For example, a trading capital with $1,000 experiencing a 10% loss will end up at $900. A 10% win later and the account will end up at $990. In this case, the trader would need to make a profit of 11.11% to break even.

2. Why is it Necessary to Have Tight Money Management Systems?

As demonstrated by the examples above, no one can anticipate when profits or losses will be made. Measures need to be taken just in case the losing trades happen first.

3. Getting Automatic Forex Management Systems with Trading Robots

One way to deal with these issues easily is to download trading robots that trade automatically. This type of trading software reduces trading lots automatically when the capital goes down. I personally use them and I do not need to worry about managing my capital any more.

Source: http://EzineArticles.com/?expert=William_Barnes