What % Of My Total Account Should I Risk Per Trade?
So you want to know what it takes to be a good trader.
Surprisingly most new traders jump on the forex market with no specific plan thinking that they will make thousands of Dollars in record time. You see trading is not that easy of a job. Yes it is a job, not a leisurely activity but simply a job which needs to have some strategic plan in place so that it may be performed properly.
I knew that trading was no rocket science but still I could not make a decent profit on the market. This is until I stumble upon one crucial part of my trading that I was always neglecting, my Money management rules. Once I started following those simple rules that are outlined below, my trading took a dramatic change.
Quite surprisingly, being a good trader doesn’t require having an awesome system that wins 95% of the time. A lot of new traders get caught up in the hype of the amount of money they can make and forget about the proper trading size they should use per trade. This major mistake causes a lot of traders to blow their whole account in a matter of days. Simply because they ignored the Money Management rule.
Money management is in other words the back bone of your trading. Having well thought rules and sticking to them will help you stay in the FX arena for longer. Bear in mind that trading is to some extent a game of probability, a reason why to have a good money management rule in place.
Below are some of the critical rules you should abide too in order to survive the currency market.
* Risk only 2% of your total account size per day
* Trade with less than 1/10th of your account size. This is a critical rule for staying in the forex game long enough to succeed.
* Always use a stop loss that is decent enough so as not to get thrown out of the market to later see price heading in the initial direction you picked.
* Always use a decent Stop Loss so that you are not thrown out of the market too quickly. I use a 15 minutes chart to access my SL when I trade off a 5 minutes time frame.
Those rules are ridiculously simple but heavily ignored by many new comers in the trading world. Following the critical points stated above will greatly help you in your trading. This will undoubtedly keep you in the game long enough to be profitable.
Here is a guide to give you an idea of trading lots:
1 Lot = 100.000 Units of a currency. Pip value = 10 Dollar
0.1 Lot = 10.000 Units of a currency. Pip value = 1 Dollar
0.01 Lot = 1.000 Units of a currency. Pip value = 0.1 Dollar
Thus, having an account size of $10000 and risking only 2% per day implies that you are ready to lose $200 on any given day. Depending on the amount of pip you are risking you will pick the appropriate lot size.