{"id":51855,"date":"2014-05-27T10:14:13","date_gmt":"2014-05-27T14:14:13","guid":{"rendered":"http:\/\/countingpips.com\/?p=51855"},"modified":"2014-05-27T10:14:13","modified_gmt":"2014-05-27T14:14:13","slug":"dream-big-but-trade-wisely-managing-your-forex-account-the-smart-way","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2014\/05\/dream-big-but-trade-wisely-managing-your-forex-account-the-smart-way\/","title":{"rendered":"Dream Big But Trade Wisely: Managing Your Forex Account the Smart Way"},"content":{"rendered":"
May 27, 2014<\/div>
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\"flower\"<\/a><\/span><\/p>\n

The quickest way to tell an amateur Forex trader from a seasoned professional is the way they are managing their money. A trader who has been building an account for years knows and understands how important patience is, while new traders are biting at the bit trying to figure out how to double their portfolios\u2019 worth in a week.\u00a0 Once a trader learns how to control his urges, managing his money will come naturally.<\/p>\n

The Huge Score<\/strong><\/p>\n

Whether they realize it or not, all new traders open their first accounts with visions of George Soros in the back of their mind.\u00a0 That\u2019s the guy who made a clean billion dollar profit in one day by shorting the pound.\u00a0 What they fail to realize is that for every George Soros story, and keep in mind there is only one, there are hundreds of thousands of cases of the exact opposite taking place.\u00a0 An over-anxious new trader puts all of his eggs into one basket, doesn\u2019t have a plan, and loses it all.\u00a0 That\u2019s a scenario we hear about all of the time.<\/p>\n

Developing Discipline<\/strong><\/p>\n

What sets the successful trader apart is having an inherent sense of discipline.\u00a0 It is no secret that every plan should have an exit strategy, or stop-loss, but human nature directs us to ignore that.\u00a0 No one likes to be wrong, and an undisciplined trader will often times overlook his own plan in order to be proven right, to the detriment of his account.<\/p>\n

The opposite holds true when a trade is going well.\u00a0 This time, the instinct to get out while the going is good is a powerful one, as new traders are fearful of losing the profit.\u00a0 Those who have not yet learned discipline and basic money management strategies forget to adhere to the limits they put in place and will pull out before they reach their target.<\/p>

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Discipline in Forex trading means learning how to ignore your primal instincts and stick with what you mapped out before the trade.\u00a0 There is no shame in cutting your losses early and there is no sound reason not to let your profiting trades ride.\u00a0 By doing so, you stand a better chance of achieving your over-all trading goals.<\/p>\n

Have a Few Baskets<\/strong><\/p>\n

We have all been told at one point or another never to put all of our eggs into one basket.\u00a0 This is sound advice for the Forex market for two different reasons.<\/p>\n

First off, never trade your entire account balance at one time.\u00a0 For me, using an equity stop, which is basically trading in percentages, has always worked best.\u00a0 I made a choice of how much of my portfolio I would be willing to lose and will only allocate that percentage of my over-all account balance to be risked at one time.\u00a0 This has allowed me to build my portfolio steadily.\u00a0 As my balance grew, so did the dollar amount invested, allowing it to grow exponentially.<\/p>\n

The percentage of risk you choose is an entirely personal one.\u00a0 Many investors recommend that new traders do not exceed 2%, and that experienced ones not go above 5%. Critics to this approach fear the loss.\u00a0 If you do suffer some losses in the beginning, the amount of money you are investing decreases, making it harder to recover.\u00a0 This is a legitimate concern, but if you go back to discipline you should be able to recoup those losses quickly by pulling out at the right time, sticking it out when your plan is going in your favor, and managing your risk to reward ratios carefully.<\/p>\n

Having a few baskets also means making multiple investments at the same time.\u00a0 This requires hard work as you need to be doing research on multiple levels simultaneously, but the rewards are well worth it.\u00a0 If you spread your eggs around so to speak, you increase your odds of turning a profit.<\/p>\n

Lose Your Leverage<\/strong><\/p>\n

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\"fin-crisis\"<\/a><\/span><\/p>\n

The ability to leverage a trade is very appealing to a new trader, but in order to manage their money they need to tread lightly when a broker is offering it.\u00a0 Leverage is like taking out a short term loan with no definitive way of repaying it.\u00a0 For example, a 1:100 leverage means you only need to put up $1,000 for a 100,000 USD.\u00a0 The temptation to take advantage of these offers and overstep their limits is often overwhelming for the new trader who is looking to score big right away.<\/p>\n

The problem with leverage is glaringly obvious.\u00a0 All is well and good if the trade is successful, but if it goes sour you have risked more then you can afford to.\u00a0 This type of trading has been the demise of many young investors who dreamed larger than their investment accounts.<\/p>\n

Every Trader Needs R and R<\/strong><\/p>\n

To best manage your money and always maintain a positive account balance, traders should be scrutinizing their risk to reward ratio before every transaction.\u00a0 A trade should never be made where its risk is higher than the possible reward.\u00a0 The exact ratio is dependent on your own trading strategy, but a good rule of thumb for new traders is to use a 1:2 risk to reward.\u00a0 If your strategy has been providing a low winning percentage you should consider raising that to a 1:3.<\/p>\n

Understanding and implementing a risk to reward plan is a key element in managing your money.\u00a0 When you consistently trade at a 1:2 then even if you are right only half the time, you still will make a profit because your reward targets where higher than your losses.\u00a0 If you are not following a consistent and strategic risk to reward plan in your trades, then you are not in charge of your own profitability.<\/p>\n

Just like your trading plan, how you manage your money varies depending on your strategy and style of trading.\u00a0 So long as you can remember to keep your goals realistic, follow your plans and avoid large risks you should be able to have your money working for you.<\/p>\n

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Casey Stubbs<\/span><\/a> is the founder of <\/span>WinnersEdgeTrading.com<\/span><\/a><\/span> which is one of the most widely read forex sites on the web. Winners Edge Trading has trained thousands of people to trade the Forex markets.<\/span><\/p>\n

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The quickest way to tell an amateur Forex trader from a seasoned professional is the way they are managing their money. A trader who has been building an account for years knows and understands how important patience is, while new traders are biting at the bit trying to figure out how to double their portfolios\u2019 […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-51855","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/51855","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=51855"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/51855\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=51855"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=51855"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=51855"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}