This is for profits as well as loses!
I find that the best forex trades I put on are those trades where my emotions are not a factor in the currency trade to begin with. To do this there are some basic principals I follow regardless of the strategy or time period I am trading.
- I set a pip goal for the trade based on my trade plan and technicals. If you do not have a trade plan where you have outlined your currency trading goals and objectives then stop reading this blog and create one now!
- I never risk more than 5% of my account on any given trading opportunity. To calculate the amount I will risk I divide my trading account principal by 0.05 and then divide that by my stop loss (dictated by the strategy I employ) to give me the number of lots I will place on the forex trade. This is the number I am personally comfortable losing. Yes, I said losing! I always approach risk management in forex trading from a “what if I am wrong” point of view.
- I always trade with a stop loss and limit order! This takes the emotions right out of the equation. I have learned with experience to employ trailing stops and fine tuning of my technicals to lock in profit and provide ever increasing better entry and exit points. Over time I have been able to let more winners run and cut loses shorter than when I first began trading.
- Here is my forex money management “golden nugget!” If take pause after a draw down of 25% AND after a run up of 25%. During this 2-5 day period I trade in my demo account, practicing new strategies or reviewing the basics. This keeps me grounded when I am too down or too up.
These are my rules. By keeping a good forex trade journal you will be able to recognize your strengths and weaknesses, and employ them in your money management plan.
Join my community of traders at FX Trainer for your forex training needs and visit my forex education portal FX Trade Central for more currency information and education.
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