Practical Money Management That Works
Submitted by User on July 14, 2011 - 18:20.
PRACTICAL MONEY MANAGEMENT THAT WORKS
Rule 1: Risk no more that 2% of account balance;
Rule 2: Use natural support / resistance to set the stop-loss; and
Rule 3: Use the range between current price and the proposed stop-loss to calculate lot size.
The golden rule of money management is "Never risk more than 2% of account funds on any one trade", which refers to the amount that may be lost, and not the amount that may be traded. You could trade 5%, 10%, even 20% of your account funds, but your stop-loss must not allow more than 2% of account funds to be at risk. Using this 2% risk factor and combining with the stop-loss range (number of pips), you can calculate the lot size that can be traded without exceeding your 2% risk factor if the stop-loss is triggered. The most important element in this calculation is the stop-loss.
SETTING THE STOP-LOSS: Any indicator that identifies support and resistance can be used. You could use lines drawn at support or resistance, or you could use a Moving Average, or Parabolic SAR, for example, provided your choice provides a clear reference point on the price chart. My preference is to use either a Moving Average or Parabolic SAR, as both of these automatically move with the price action and provide regular points at which to set my Trailing Stops. I will use Parabolic SAR in this example.
CALCULATE STOP-LOSS RANGE: For long position, subtract Parabolic SAR from the current price to determine number pips between Parabolic SAR and the current price. This is the stop-loss range.
CALCULATE 2% OF ACCOUNT FUNDS.
Edward Revy,
http://forex-strategies-revealed.com/
Copyright © Forex Strategies Revealed
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I also just learnt a few tips from u... Thanks a mill
Chuks (from Nigeria)
Thanks that was useful
HI
I am new to this site and its a very nice and informative site for new traders.
Sir I want to get an expert advisor which can email alert me when my equity becomes -150 of the running trades. is there any EA out there which can do that,
for example if my balance is 3000 and my current trades are at -150 (which becomes 5%)
so when that happens I want to get an alert on that that my equity has reached 5% less so please share that EA with us, it will be beneficial for many of new traders.
Thanks.
good
I found this forex web service, 4xlots.com, that will compute the lot size automatically and increases as the balance increases. They have a metatrader component which allows you to include the calculations in your expert advisor, and they include the mq4 code. Looks interesting?
nice suggestion but how do you calculate it?
i will consider your suggestion strongly. thanks. Marcel(Nigeria)
i am writing from ivory coast.i am looking for someone who can teach me free forex trading.please you help [email protected] hope to read you
Hi Osama i am also from Pakistan.Can u give me ur email or contact no.
Sohail
Pakistan
very good explained, thanks a lot
Great information!
Thanks
thanks
good suggestion
Forex 10 major rules by Osama Bin Ishrat :
1. Look risk before trade and don't look on profit or number of pips .
2. Keep in mind your risk level that how much money you are going to loose per trade.
3. For long trade always use ,:3 or 1:4 means low lose and high profit .
4. Use trailing stop if you are use to or place S/L at break even when you're in profit.
5. S/L should take place on each trade. this is the point where a lot of peeps loose their account in a while.
6. For beginners risk should be 1-2% per trade.
7. Do not increase lot size in start , always increase volume when your deposit is double. Example:If your deposit is 300$ you should start trade with one point = 0.01
If your deposit reaches 600$ you can increase lot size = 0.02 and so on...
8. Study chart patters if you can or use indicators but prefer to use chart patters as they give more probability than indicators . How ever indicators can also give good result some times .
9. Never do trade when you're confused about chart pattern i.e whether it is head and shoulder or double bottom. Wait for a right pattern then start trade.
10. Never use risk reward ratio 1:1 , 2:1, 3:1 and so on. Means don't trade on low profit and high loss other wise it will emptied your account in few days .
Thanks if you thought it is efficient for any one or beginners .
Osama Bin Ishrat
Pakistan
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