The main principles of construction of Money Management
Every experienced trader knows how important it is to be able to competently manage the resources of the deposit, so as not to lose it.
Money management, or, as it is called, Money Management is the backbone of any trading system that helps the trader to make a profit when trading on the exchange. Money Management is particularly important when trading on the stock exchange Forex, which is the most promising in terms of profit, but also the most risky, because the higher the probability of making a profit, the higher the probability of loss.
Forex trading depends on the individual person, so that each trader has developed its own trading system based on its own system of Money Management.
However, there are a few basic rules, which is not recommended to neglect anyone.
The deal can not use more than 10% of available funds. You have to understand the nonlinear relationship between winning and losing. If you lost 10% of the deposit, to return a lost, need to win 11% of the remaining funds in the account. And if you lost 20%, you need to win over 25%. So many traders agree that losing 50% of the deposit is no longer possible to play and see the maximum allowable drawdown in 30% of the account. If you have a large deposit to use even 10% is risky and it is recommended to use no more than 2-5%.
Another rule of competent Money Management is to limit potential losses. Experienced traders say that the main thing - is to take care of losses and profits take care of themselves independently.
Limit the loss of two ways: by setting a warrant closure of the Stop Loss or transactions in a "lock" by opening a lot of the counter position of the same magnitude as the initial. And both ways have its pluses and minuses. Stop Loss order fixes a losing bargain trader at a predetermined level. "The Castle" can not write off the amount of the deposit, but it requires certain skills and experience to get out of it. In addition, not all trading platforms offered by brokers to their clients, allows you to open a counter transaction. In any case, in failing to order the opening of Stop Loss or counter position we must remember that the order should be set based on the 2 conditions. First, the Order of the counter should not be placed closer than 40-50 points from the opening price of the initial transaction, because the closer its location it can work because of the price fluctuations caused by market noise. Secondly, the amount of probable loss should not exceed 5% of the deposit. If these conditions are appropriate to deal not open at all.
There is a third condition, which is more desirable than mandatory, but nevertheless contributes to profit trader. Possible relation to the possible loss of profit should be at least 2/1.
The following components of a competent Money Management is the choice of leverage. Recently, brokers began to offer its customers credit shoulders up to 1:500, as a result of losing their deposits traders has increased dramatically. It must be remembered that even a leverage of 1:100 is too risky and it is permissible to use at small sizes of deposits. Generally, the lower the shoulder, the more likely to keep money in your account and stay in the game.
And another rule, which should not be neglected in the formation of Money Management, is the preservation of cold reason, in whatever direction the price did not go after the transaction is open. Even if it was losing money, you should never try to win back the same day. If the trader does not correctly predict price movement, so he does not understand what is happening in the market at the moment. In this case, would be wise to turn off the computer and go back to trading on the next day, after analyzing the graphs again.
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