4 Tips For Managing Forex Like A Pro

by Trading 101     jul. 16, 2019

One of the key pillars of knowledge in forex trading is money, right along with mind and method. Money management, and by extension, risk management, is essential to being a successful trader. In forex trading 101 most new traders are taught the basics of risk and money management, but it goes a lot deeper than that.

Money management should be at the forefront of any traders’ decision-making process. Let’s look at at managing money in forex trading 101.

  • 1) Always Know Your Exit Points

The amount of traders that lost a huge chunk of their capital or went downright broke because they failed to implement stop loss measures or exit points is staggering. Before entering any sort of position on any market, forex or else, a trader should be planning for the acceptable amounts of loss and exit levels for profit.

Stop loss measures are easily implemented and allow traders to go have lunch away from the computer without having a heart attack over whether a trade is doing well or not. It’s peace of mind and peace for your capital, too.

On the flipside, many forex traders hold onto some pairs for too long due to an upward trend. In a matter of seconds this trend can flip and go downwards instead, increasing risk and potentially incurring losses that way. Exiting once the position has reached a predetermined profit point is good trading practice. It teaches discipline and self-control.

  • 2) Risk Is Everything

How well you manage money often comes down to how well you manage risks. Taking big risks is, well, risky and discouraged. Picking the right level of risk that aligns with your realities such as personality, trading style, intended exit points and capital amounts is going to elevate any forex trader’s game.

Rule of thumb is that a position size should not exceed 2% or 3% of total capital – any bigger and you could be losing a serious amount of money when a series of trades goes bad. In forex trading, adjusting to volatility is generally recommended. The more volatile a currency pair is, the smaller a position on the pair should be.

  • 3) Leave Your Emotions At The Door

Leave anger and competitiveness for your Sunday league football games and keep happiness and attachment for your friends and family. When it comes to trading you should consider yourself a scientist and behave as such.

Emotions will lead to mistakes. Everyone’s made emotional decisions in their life before only to look back and cringe. Only in the case of trading it’s not because you said some poorly thought out insult to someone, but because you might have lost a sizable amount of money.

Staying calm and collected is key. Whatever Hollywood portrays as what traders should be like is fiction – if you’re frazzled, stressed and angry all the time, then you should get some medical help or consider a change of profession.

  • 4) Set Realistic Goals

Despite what many may think, trading is not going to turn anyone into a millionaire overnight. Even the luckiest Bitcoin investors needed to have waited at least a year or two before making it big and Bitcoin is a very different animal to any other type of trading.

On that note, it is absolutely possible to make millions from forex trading – assuming you have a capital amount large enough. It’s important to understand what can be achieved in a single day, week and month, especially given whatever capital amount is available. Someone trading on a $100 budget can make it big too, but it’s going to take quite a few years more than someone working with a $100,000 budget.

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