Money Management Secrets for Successful Trading

Money management is something that most traders don’t wish to talk about.
It is embarrassing, or even emotionally painful for someone
to talk about it, if they know they aren’t doing it right.

However, it is usually the one of the most important thing you can do to improve your Forex trading. This means, being honest with yourself and focusing on the “hardest” or most boring things first and as often as necessary. If you ignore these things, they will usually become huge problems you can't control anymore.

Keep risk consistent
The first thing I’m going to tell you about is to keep your risk consistent. Do not increase your positions until you have a significant increase in equity. Most people make the mistake of increasing their positions as soon as they start making money. That is a quick way to get wiped out.
Most traders tend to increase their risk after a winning trade or after a sequence of wins. This is typically something everyone should avoid. Doing the opposite of whatever most traders do can be considered the success of trading.

I always encourage everyone to maintain a consistent threat not only because this is how other professional traders work, but also because of lessons learned from my own personal experience. Earlier in my career, I was the one hammering my risk after a winner and soon after realizing that this was not the brightest idea. Also, from my observations of traders I talk with, I know that many of them increase risk after a winner, and this is a big reason they are losing.

If you win a few trades, you tend to be overconfident and I should say that that there’s nothing neccessarily wrong with you if you do this or have done it. It’s actually human nature to become less risk averse after winning a trade or multiple trades. However if you want to make money trading the markets it's something you'll have to put an end to. As humans, we enjoy gambling and after hitting a nice winner, it can be really hard to ignore the feelings of euphoria and confidence, but you still have to if you want to manage your money effectively and make a living in the market.

Withdraw profits
As discussed above, one of the keys to effective Forex money management of Forex is to keep the risk consistent or defined. Professional traders do not increase their risk exponentially after each winner. This is not a logical or real-world way to manage your risk. Professional traders who make their living in the markets withdraw money from their accounts each month and most of them hold their accounts funded to around the same level each month. If you’re withdrawing profits every month then you would not keep increasing your risk amount over time.

What you need to do is build up your account to an amount of which you are comfortable and then you can start to withdraw gain every month. Therefore, the amount you risk on each trade would not keep increasing because your trading assets would ultimately reach a level of balance.

Don't be greedy: do not shoot for big targets
Another thing about money management is that you actually have to take profits. Many traders just don't take profits as often as they could and many traders almost never take profits. Why are you having trouble taking profits? It's simple: when a trade is in your favor, it's hard to take a profit because your natural tendency wants to keep a trade open to you. Although letting your winners run is valuable, you need to pick and choose when you do this; you should definitely not try to let every winning trade run. The market will not make a really strong directional move most of the time without heading back a lot of it. Therefore, as a short-term swing trader, it makes much more sense to take a decent 2 to 1 or 3 to 1 profit when the market offers it to you rather than waiting until the market retreats toward your position and falls all the way back to your entry point or beyond, at which point you're likely to exit emotionally as you're crazy that you let go of all that potential profit.

Especially for traders with smaller accounts, you have to be happy to take 1 to 1 or 2 to 1 rewards.

Final note
Clearly, the strategy with which we trade is important but in fact, this should not be the whole thing of your trading plan. The real "key" to trading is the way you handle your risk and your total capital. Most of you already know that you don't pay enough attention to how you feel about capital preservation and risk management, you don't take it seriously because it's the game's boring part. It is time to wake up and face reality; failing to pay attention to risk management and capital preservation can lead to a road of financial pain and personal anxiety. The basis for successful trading is to manage your risk properly when trading with a simple yet effective trading strategy. Once you combine these two essential trading puzzle pieces, you'll be ready to start making consistent money.

HIGH RISK WARNING: Foreign exchange trading carries a high level of risk that may not be suitable for all investors. Leverage creates additional risk and loss exposure. Before you decide to trade foreign exchange, carefully consider your investment objectives, experience level, and risk tolerance. You could lose some or all of your initial investment; do not invest money that you cannot afford to lose. Educate yourself on the risks associated with foreign exchange trading, and seek advice from an independent financial or tax advisor if you have any questions. Any data and information is provided 'as is' solely for informational purposes, and is not intended for trading purposes or advice.