This is the first rule of trading forex. I cannot overemphasize this fact but sadly, it will be ignored by very many people who read this article.
Some people think that trading forex is a game. A gamble. A night at the casino. Some people start trading with a sober mindset but immediately they win a few trades and make a few shillings, they start getting an adrenalin rush and they throw all caution to the wind. They are roped into the fantasy and they quickly forget the reality at hand.
This is the fastest way to watch your entire capital, however large, vanish into thin air. Poof!
You do not walk into war without a strategy. You do not go into competition without a plan. You do not trade forex without sound money management.
How much of your capital are you going to risk per trade? Ten percent? Twenty percent? When do you enter a trade? Under what conditions? When do you exit a trade and take your profit? And when do you flee and stop a loss if the market goes haywire?
Take a pen and write these things down, and stick to your money management plan like superglue. However optimistic you feel, however good the graph looks, however confident you feel, NEVER IGNORE your money management rules. If, according to your money management, all signs indicate that you should exit a trade, EXIT IMMEDIATELY and take your profit or stop a loss.
Don’t sit and say, “Maybe if I wait a few more hours things will shift in my favour.” You will sink deeper into debt/losses!
Stick to your money management rules.
In your own time, please purchase this wonderful DVD (HERE) and watch it please. In addition to being full of invaluable information on the best forex strategies and hands on guidance, It has an entire chapter on Money Management and you will not regret having it in your forex eduction arsenal.
I wish you happy and prosperous trading!