Forex money management is the key to making bigger profits yet most traders have no idea how to do it correctly and more traders lose due to poor money management than any other reason. Here we will look at how to do it properly…

Utilize these points as the basis of your money management and you will have better risk to reward and better profits.

1. Risk Meaningful Amounts

Many traders want to take so little risk in forex trading they put their stops so close their bound to get stopped out by normal volatility. Understand this – forex trading is risky, you have to take risks and a stop to close, simply guarantees a wipe out.

This is why day traders and scalpers always lose, because their stop is in the way of random volatility.

There is of course a balance but most traders have their stop to close and you need to take a bigger risk when market conditions dictate which we will come back to in a moment.

2. Do Not Over Leverage

If you are going to take more risk per trade, then you need to de leverage.

Forget about 200 – 400:1 that most brokers offer you, this is madness for small accounts under $1,000, use 10:1 and build up as your account grows.

Over leverage simply means account wipe out.

3. Remember the 80 – 20 Rule

The 80 – 20 rule is used a lot in business and postulates that 80% of your profits come from 20% of your clients.

This rule can be applied in many areas of life and in forex trading its very applicable and means – cut you’re trading frequency back!

Many traders think the more they trade, the more they will make but the reverse is true. All they do is end up taking trades that are not good risk rewards and lose.

Wait for the really highs odds trades and hit them. I know traders who trade around a dozen times a year yet, make triple digit gains.

Trading less can mean making more for most traders so cut back and only hit high odds trades.

4. Risk More Per Trade

If you are trading high odds set ups then you can risk more on them and make the gain worthwhile. Many so called experts tell you should risk only 2% per trade but consider on a small 1,000 account that’s $20.00 – well if you risk that your stop is so close normal volatility will get you. Look to risk 10% or even 20, on the high odds trades and have the courage of your conviction.

5. Don’t Diversify

This is ok if you’re trading a large account of $50 – 100k – but for small potato investors to diversify for the sake of it, doesn’t reduce risk at all but simply dilutes profits.

Focus on one trade only and don’t dilute its potential.

6. Take Profits Early or Partial Profits

On surges in price from fair value in many instances it’s a good idea to bank a profit as a currency becomes over bought or oversold and then wait for the next re entry – the problem with this is if it’s a big trending move you can end up out the market and watching the trade pile up bigger profits and your not in on the action.

There is a simple way around this bank 50% on the surge and then look to put it back in on a retracement back against you. If the moves carry’s on your still in.

I have found the above smoothes the equity curve and it helps traders remain focused and disciplined.

When you trade a forex position you are immediately at risk and how you control the risk, will determine how good your profits are going to be.

The above tips are designed to hit high odds trades then, take calculated risks when the time is right and at the same time protect your core equity.

Money management should be a key area of your forex education, so learn how to do it correctly and you could soon be on the road to forex trading success and triple digit gains.

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If you want to win at forex trading longer term money management is something you must consider. When dealing on leverage, you need to protect what you have – if you don’t you will get wiped out.

Many traders make basic errors when trading and here we will look at them and give you simple tips to avoid the errors and increase your overall profitability.

1. Not Understanding Standard Deviation of Price

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Ask most forex traders do they understand the above and you will be met with a blank look yet, it’s essential to understand it and volatility, otherwise you will never know how to place stops in places where the odds are in your favour.

If you don’t know what the above is, make it an essential part of your forex education as you really need to place and trail stops behind random volatility.

Placing a stop close may appear good risk control – but if the chances are high it will be hit, then you have simply gained nothing. By trying to avoid risk you can actually create it.

2. De Leverage

As you will have to have stops outside of random volatility you will need to de leverage. Many traders are in a hurry to make money and leverage up to high put the stop to close and get hit. You need to give the market room to breathe and that means wider stops and lower leverage.

3. Trade Breakouts

If you only trade valid breakouts you have a great method of risk control and an obvious stop ( below the breakout point) and if you are selective in the breakouts you take the odds of success are even higher which leads to the next trading tip.

4. Cut Your Trading Frequency!

If you only focus on high odds big breaks then the odds are on your side even more and your stops are less likely to be hit. I know traders who trade no more than once a month but make triple digit gains.

You don’t get paid for trading often in forex trading you get paid for being right – that’s all.

5. Trailing a Stop

Most traders get so excited that they have a profit they can’t bare to give any of it back so what do they do?

They bring the stop to close and get stopped out by random volatility and lose.

If you want to make money you have to take calculated risks and if you want to run big trends keep your stop well back.

A good level to trade is a close behind a significant moving average and the 40 day is a good one. Sure you will give a bit back but that’s inevitable but this method will keep you with the big trends longer.

6. Buy Options!

If you want to deal with volatility and get staying power then consider options as that’s what they give you – the ability to ride out short term volatility and providing the market trades in the money before expiry you have a gain.

The only point to keep in mind is when placing options trades and buying them to get plenty of time on your side and buy at or in the money puts and calls.

Forex money management is all about taking calculated risks at the right time and defending what you have – volatility is your enemy. Most traders can spot trade direction but fail to stay with trades simply because they can’t get their money management right.

If you follow the above tips you will take calculated risks at the right time and be able to handle and cope with volatility and seek bigger longer term gains.

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NEW! 2 X FREE ESSENTIAL TRADER PDFS

For free 2 x trading Pdf’s, with 90 of essential info and more on Forex Money Management visit our website at: http://www.learncurrencytradingonline.com