Need to know, although your trading system provides a percentage of profit opportunities above 50% in every trade, but it can not guarantee you can be successful in this forex trading. Many say that 95% of traders have failed, I do not know if the numbers are true or not. However, I once met a trader who had suffered huge losses and losses in forex trading, but if he saw the trading system he used was very good.
Then what made him fail? Bad Money Management. Yes, managing inadvertent funds by using large lots makes many traders fail.
Money Management or margin fund management is the most important part of any trading system. Most traders take this very seriously and do not understand how important money management is.
It is important for you to understand the concepts in managing the funds and the decision to use the correct lot. Managing the right funds is by calculating the appropriate lot size in a single transaction. Also calculate the risk of loss that you will receive if the order is losing is the key of this Money Management.
I was very surprised when I met a trader who used the lot just by using a benchmark of how much $$ he will receive when profit and ignore the risk of losing a lot of $$ when he loses. This is very surprising. How he can have confidence that any open positions will definitely get a profit. No matter how great the trading system you have, if you do not manage the funds would someday suffer huge losses in just one open position.
There are many strategies in managing Money Management, but the point is how to minimize the risk of each open position. That's what counts.
To set up and create a Money Management strategy, you must understand this term, Equity.
Equity = Fund (your money in account) - Number of open positions. (This is just a simple formula)
If you look at the above simple formula, we can make a conclusion like this: If you have $ 200 in trading account and you open 1 position using a margin of $ 20, then your equity is still $ 180. If you reopen a position with a $ 20 margin, then your equity will be $ 160. You still think $ 160 is still a lot and intend to open the position again? Eits, that example above is just a simple formula.
We have not calculated the required margin usage, the lot and how much leverage is used. I'm sure $ 160 will disappear within a few days if your position is wrong.
If you're a tradint without proper fund management rules, you can actually say you're gambling, not investing. You do not see how your investment funds end up in the long run.
All you know is how much to get tens or hundreds of dollars in just one trade. Money Management not only protects margin funds in trading accounts, but also provides a very profitable portfolio for your long term investment objectives.
People go to Las Vegas, casinos or gambling houses to gamble and hope to win the jackpot in just one night and become rich. We know there are people who get that kind of luck. The question is how gambling houses still earn money the next day, even though they suffered losses due to 1 person who got the jackpot? In the long run, casinos still make a profit because they earn more money from people who do not win. The casino owner also believes that the person who got the jackpot will feel addicted and continue gambling in the following days. The result? Of course "Home Always Win" alias bandar will never lose, in the long run.
Then how to manage good funds?
Assume you choose risk percentage of 4% of total funds in trading account. If your funds are $ 100, then the value of 4% of $ 100 is $ 4. So in one maximum trade you incur a loss of $ 4 only. If the position is a loss, then your funds are still $ 96. Not bad. If using the percentage above, then your funds will be exhausted if in 25 times your open position losing positions in a row (25 x 4% - 100%).If we use 2%, then required as many as 50 times the position of loss in a row for penyabis funds in trading accounts.
Or you can use a total percentage of risk by splitting in several positions. Your example chooses a 4% risk percentage. In 1 trading day you divide the 4% in some positions. Suppose you intend to open a position in several pairs at once such as USD / JPY and GBP / USD. Then the total margin used in both pairs is a maximum of 4%, should not be more.
Compare to this one ...
If you have $ 100 and set a 10% profit percentage. Certainly in your dreams is how to get 10% of $ 100 alias $ 10 in just 1 trade. If in 10 times you experience loss in a row, then run out without the rest.
The bad news is that many of the traders who manage management prefer to use the percentage of margin with how much of it he can. Indeed, human nature is greedy, or more thinking about how much he will get and ignore the risk of loss he has.
Remember, Forex Trading is a very appropriate investment for the long term, not a place to gain wealth in a short time.
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