The importance of money management is highly underestimated
amongst traders everywhere.
It is almost like people are missing the whole point of trading. Too
much time is devoted to finding the perfect trading system but any
a trading system without money management is doomed to failure,
even the best one!
Every trader has to incorporate money management into there
trading system with the objective of controlling risk.
Let's go over a simple conservative money management system
using an account of $20,000 for this example.
Each lot traded on the EURUSD is $10 per pip so to risk 1.5% of the account we can risk $300 on each trade. In pips, we would be risking
30 pips.
Now for every $2,000 the account increases we can add another mini lot to the trade size. If the account grew to $22,000 then we would be trading $11 a pip and risking $330 on each trade.
No matter what the size stop is on your trade even is it is 200 pips you must not risk more than 1.5% of your account.
On the other hand, if the account decreased from $20,000 TO
$18,000 you would then have to reduce your risk per trade to $9 per pip to keep the risk of the account under 1.5%.
You could also reduce your trade size if you feel that you are not trading well during a certain period of time, I know of many traders who do this and I think this is a great way of protecting your account.
Take a small sticky note and write "You must always protect your account" now stick it on your monitor.
amongst traders everywhere.
It is almost like people are missing the whole point of trading. Too
much time is devoted to finding the perfect trading system but any
a trading system without money management is doomed to failure,
even the best one!
Every trader has to incorporate money management into there
trading system with the objective of controlling risk.
Let's go over a simple conservative money management system
using an account of $20,000 for this example.
Each lot traded on the EURUSD is $10 per pip so to risk 1.5% of the account we can risk $300 on each trade. In pips, we would be risking
30 pips.
Now for every $2,000 the account increases we can add another mini lot to the trade size. If the account grew to $22,000 then we would be trading $11 a pip and risking $330 on each trade.
No matter what the size stop is on your trade even is it is 200 pips you must not risk more than 1.5% of your account.
On the other hand, if the account decreased from $20,000 TO
$18,000 you would then have to reduce your risk per trade to $9 per pip to keep the risk of the account under 1.5%.
You could also reduce your trade size if you feel that you are not trading well during a certain period of time, I know of many traders who do this and I think this is a great way of protecting your account.
Take a small sticky note and write "You must always protect your account" now stick it on your monitor.
