What Exactly Is Money Management In Forex ?
Money management refers to the set of rules that we (traders) set for our trading accounts. These rules involve things such as when to exit a loosing trade or cut our losses. So basically it is about how much we are willing to risk in our accounts per trade. I always say that as much as we cannot control the markets, there are a lot of other things that we can control. We can control ourselves, which is the most important part of trading. I recently published a blog post on trading psychology, you can read it here. Controlling ourselves in the markets can be very challenging, but it is something that can be achieved as long as we are willing. It is even better with the help of a mentor or a coach.
How to avoid losses?
You cannot avoid losses in trading, losses are a part of the whole process. If you hear someone saying that you can avoid losses, they are probably trying to sell you some “amazing system”, run (with your bank card). The only way to avoid losses is to stop trading altogether. Because I know for sure that losses do occur, I wrote a post on how to recover from a draw-down. The good news though is that we can control the losses through using a tight money management strategy which will ensure that whenever you encounter losses, they should not exceed your gains. I am a very simple girl who loves to simplify everything. Whenever I do a lesson on money management with my mentees, I don’t use any complicated calculators but I teach them how to view their accounts. Below I will be going more in depth with how to view your trading account.
View your trading account as a business
I know very well that opening a trading account does not qualify one as a business owner. I also know that there’s absolutely nothing that can stop you from viewing your trading account as a business, so start right away to view it as a business. When you view your trading account as if you just opened a small business, you’ll be likely to implement all the principles that we implement when opening a business. Everything works better if you work it our in your mind first. I don’t know any business owner who opens a business and completely ignores the running costs (I know I don’t). If your business is about selling food (of course I’ll say food because I love food) you are not going to just attach a price to your plates without thinking about the cost of cooking that food.
When it comes to your trading account, you must also manage your money like you’d manage the money in a business. Mind your lot size, spreads and know the currencies and other financial instruments that are a bit expensive for your trading capital etc, just like you’d always try to calculate your costs in a business. Unfortunately, I cannot explain more on that through a blog post but I definitely do in detail through my mentorship program.
How do you know if your money management is tight enough?
This will depend on many factors like how you trade, how often do you trade, the lot size that you trade, the instruments that you trade and the time frames that you trade etc (at least that is how I look at it, it could be different for someone else). Some traders operate on a fixed money management which means risking the same percentage for all your trades no matter the volume and some do prefer to adjust the percentage according to the volume and an instrument traded. Whatever you choose to do, managing your money well in your trading account starts with understanding the costs. You may like this post about margin call which occurs due to poor money management. I am so sorry that I did not share any position calculator or system. Like I said in the beginning, I am a very simple girl and with me, simplicity always wins.
If you can manage yourself well and view your trading account as a business, you can definitely manage your money very well and never have to experience margin call. Forex trading psychology is that one areas that I focus the most on. I recently started posting weekly tips on the App that are mainly focusing on Forex trading psychology.
The main aim is to help you shape your mindset and gear it up for better trading experiences. The weekly tips are posted exclusively on the app. You can download the app on Google Playstore and make sure that your device allows push notifications to be notified whenever a new weekly tip on Forex trading psychology to improve your trading is posted. Thank you so much for stopping by. Please feel free subscribe for future publications and kindly share this post to reach more traders who may benefit from this content.