Money Management for Profit in Foreign Exchange

By Forex Illusion

What will we need from a fx trading tutorial and other forex courses? Just like with the drivers, understanding how to operate the system is only a little part of our training. Risk handling is what is most sure to prevent us from finishing up in the ditch. Let’s take an example. Say you have a system that makes a mean of fifty pips profit on winning trades and 30 pips loss on losing trades, including the spread. Around 50% of its trades are winners. It’s clear that this is a good system. However, if you start out thinking you have a fifty percent possibility of success so you can risk half of your funds on each trade, you would be making a big mistake. 50% winners does not necessarily imply that every loss will be followed by a win and vice versa. There may be 2, three, four, perhaps occasionally even ten losses in a row. Or you might have 5 losses followed by a win followed by another five losses. Later on of course, it might even up and you would have a run where there were more wins; but if you were placing 50% or perhaps twenty percent of your account balance on each trade, you’d be wiped out long before the wins started coming in.

A better risk in this particular situation would be five pc or perhaps 2 percent. At ten percent the trader would probably still be wiped out eventually. You can check this out against back tests, but always double the worst situation that you see as it is nearly certainly not the worst that would happen.