Forex Money Management
Application, Calculations & Risk-Reward
Most forex trader thinks that to make a constant profit one needs such a strategy that can generate an 80/90% winning rate, but this is not fully correct. Making a profit from forex not only depends on the forex strategy or on forex signals but also on a successful money management policy.
Money management is not a single term but the whole process from opening trade to till closing. Whatever the strategy you are using you can make a profit if you have good money management.
Most traders even newbie traders have also a winning accuracy rate above 60% but can make a consistent profit because they don’t apply money management properly.
There are many big boys who are making a continuous profit even with a 40% winning rate.
I always suggest to my fellow traders and alert followers at PreferForex for taking a 2% risk. Also need to manage trade according to my money management guide.
Applying Money Management in Forex
Money management is the most important part of forex trading. To become a successful trader there is no alternative to applying successful money management with your trading.
If you are searching for the Holy Grail in forex trading then it is money management.
Forex Money Management Model
There are many money management models, Here we discuss on Fixed Fraction Model. Let’s give you an example of how money management can play a vital role in making a profit besides a forex strategy:
As per Fixed Fraction Model Calculation Rules
Let’s assume a trader who has a 40% winning rate only and his risk/reward ratio is 1:2. He applies 2% risk per trade.
As his winning rate is 1:2, Let’s assume his take profit is 60 PIPs and SL is 30 PIPs
Also as his winning rate is 40%, he can make 4 trades profit and 6 trades loss among 10 trades.
As his risk is 2% and risk/ reward ratio is 1:2 so, from a losing trade he loses 2% from his account which is equivalent to 30 pips loss, and from a profitable trade he can grow 4% on his account which is equivalent to 60pips profit
Now let’s calculate the pips he is making or losing from 10 trades.
From 4 trades so, he generates 60 x 4= 240 pips profit
And from 6 losing trades he loss 30 x 6 = 180 pips
So, on average this trader can make the profit from 10 trades is 240-180= 60 pips
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As a profit of 60 PIPs is equivalent to 4% growth, so he can grow 4% on his account from 10 trades. So you see a trader having only a 40% winning rate can make a profit by applying good money management. To trade batter need also maintain proper risk ratio, strategy diversification, and analysis or current market moves in every aspect. To maintain a proper risk ratio needs to set standard take profit and stop loss. It is considered the best forex signal to enter and exit at a correct market price.
Some Checklist for Trader –
1. Don’t Trade Frequently or Aggressively
2. Treat Forex As a business
3. Expect only a realistic profit that is genuine
4. Learn from your wrong setup
5. Previously analysis of PROPER entry and exit point
You can read also Forex Trading Psychology
Hope it’s clear now the importance of money management to become a successful trader.
Without a successful money management strategy with a good winning rate that can also fail to make a constant profit. So in forex trading needs the proper implementation of your forex signals that maintain strong risk rewarded entry-exit level along with efficient money management. Therefore, give your time in learning and applying successful money management besides your trading strategy.
We Help to Build a Batter Forex Trader
At PreferForex we try to build a risk-aware, skilled forex trader to practice proper forex trading with the appropriate implementation of money management in trading forex. Our Forex Trad Management & Money Management Guide is full of calculation risk percentage, trade, and money management that we provide FREE with every subscription to utilize this with our signals that is so per first ever forex signals provider who do this. For better trading practice we don’t give lots of signals weekly 3-5 trades with precious targeted entry price, take profit and stop loss.