Money Management For Day Trading
The main key to successful forex trading is not only determined by the greatness of the system. Another key to successful trading lies in money management. It doesn't matter what kind of trading system a trader uses, if you can't manage your finances in forex trading, it's likely that the trader will end up failing. On the other hand, if the trader only has a simple trading system, but if the trader's money management is good and the trader is disciplined in complying with it, the trader's chances of making a profit will be much greater.
Knowing the system without money management is tantamount to a big zero. Knowing when is the right time to enter the market, when to exit, are some of the skills that a trader needs to have. Moreover, if traders use the daily system, traders can always find the right time to trade (entry) in the forex market. However, one thing that matters most of all is knowing how to manage a trader's finances while trading.
Money Management Goals
Preventing losses from occurring or keeping a trader afloat after having a bad day, i.e. when several consecutive failed trades. Without good money management, these few failures will be enough to make the trader crash without any money left. Another goal of money management is for traders to earn consistent profits.
The following is money management that traders can make the basis for trading in the forex market:
Determine How Much Fund the Trader Will Risk
The first thing that traders need to remember is to only use a certain amount of money which even if the trader loses all of it will not disturb the trader's financial household. This does not mean that in forex trading, traders will fail, but it is better if traders take security so that this does not become a disaster.
Determine How Much Capital or Margin Traders Use On Each Trade
The amount that a trader risks in each trade will determine the financial stability of the trader's account. And it is recommended to only risk 1/5 of the margin that the trader uses. For example, the trader risks 20% of the capital that the trader uses in each trade. In other words, if the total funds are $1,000 and per trade the trader uses $100 of capital, then the trader will risk 20% of the $100 which is $20. This means that each trade, the trader only risks 2% of the total funds. This risk must be approximately equal to the stop loss value that the trader will enter when filling out the order form. For example, if a trader trades with a value of $100 (with an equity of $10,000), the stop loss that the trader risks is $20 (about 20 pips for the USD currency pair).
Determine the number of trading positions that the trader will make at the same time
Carrying out several trading positions at the same time means increasing the trader's risk. Although it also means increasing profit opportunities. For example, a trader limits trading to only 3 positions at the same time. In this way, the trader uses 30% of the funds for trading with a risk of 6% of the total funds. Traders will trade again only after one or two positions have been closed.
Determine the Trader's Risk Reward Ratio
Now traders come to the most important part in Money Management of every trade that a trader makes, determine in advance what is the ratio between the Profit that the trader wants and the Loss that the trader is willing to risk. This ratio is also known as Risk: Reward. For example, if a trader designs a Risk: Reward trader of 1: 2, then this means that for every 1 value that a trader risks, the trader expects 2 profits. This rule will be applied by traders in determining the stop loss and take profit values. If a trader uses the Daily System alert, the risk: reward that the trader uses is different, the percentage of system prediction accuracy and the profit that the trader makes on each trade are different.
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