The importance of ability to manage by own capital
It is necessary to accept the fact that success in trading on the Forex market is mainly determined not by a trader's ability to accurately understand the market conditions, but by his ability to manage trading capital. It is possible that a trader will have 7 profit deals and 3 loss-making one's in one month, but in the meantime the deposit will be in a sad state if compared to the initial one.
If a trader clearly follows the rules of man-management (MM) and the signals of his trading strategy, then at 4 profit trades and 6 negative ones by the end of the month there can be a deposit increase.
Ideally, each trader should develop rules of capital management for himself, taking into account his priorities, risk appetite, etc. These rules should be an integral part of a trading strategy. To follow them, you need perseverance and time, and a good mentor, a mentor, who will be there, will tell you how to behave and teach you the wisdom of trading. It is difficult to find a specialist, given the level of fraud in the network. Only verified resources should be used here, and time-tested brokers such as AMARKETS. This company has been on the market for many years, and has long been engaged in educational activities, easily training new traders.
There are key rules of money management, following which you will not be able to become a millionaire at once, but you can save the depository and continue trading. Let us take a closer look at them.
- I don't want to, I don't want to: "For" and "Against" stop orders
It is always necessary to place protective orders. The take profit size should be at least twice as big as the stop loss size. If the number of profit and loss operations is equal, the mathematical expectation of profit will tend towards the trader as a result. In no case should the set stop loss order be moved towards increasing of loss.
If trading is performed without stops, the psychological burden on the trader increases greatly. This statement is especially relevant if the leverage size is large. The more borrowed funds are used, the greater is the risk that a slight change in quotes will lead to significant losses and may even lead to a loss of deposit. Thus, the relevance of using stop-losses increases.
Basically, all newbies step on the same rake: a deal is opened without protective orders, hoping that it will be closed manually if necessary. But when the price goes in the wrong direction, beginners often decide to wait, expecting that the quotes will turn around. It is not difficult to guess that such a decision leads to serious losses in the vast majority of cases.
- Risk/profit ratio: we keep in mind
As George Soros said, "Start small. If things go well, build up a big position."
The great financier is right to everything. Forex trading is not a sprint race, but a marathon, and the winner is the one who takes his time and correctly calculates his risks. Speaking of risks, the classic risk/profit ratio is 1:2, i.e. the trader is risking $200, expecting a profit of $400. This variant combines' mana management and takes into account the strategy's interests.
It should be noted that the ratio is 1:2 consciously. In case of losses, it is possible to repel the loss at the next trading operation, if it is profitable. Besides, risk/profit in the ratio 1:2 will also allow returning losses slowly, as it is shown in the table, where $10000 was taken as the starting capital, compliance of the trading strategy with a winrate of more than 50%.
In the table above you can see that a strategy with a 50% win rate provides a profit of $500 when using a risk/profit ratio of 1:2. Even with a slight increase in risk/profit, for example 1:2.5, it is possible to gain more profit even if a 50% profit is expected in the TS. Thus, we can say that this option works.
To get a stable profit, you can also use the indicator "Cayman", which was developed by Forex broker AMarkets (demo account) and helps traders to trade against the crowd and stay more in the plus than the minus. Thus, the win rate increases several times.
Trading like Formula 1
Capital management is like piloting a Formula 1 car that runs on a track. What happens if the pilot stops flying the car? That's right, the car will be smashed. It's like forex, if you don't control the capital, then ruin is inevitable. It is amazing that everyone understands how important it is to drive a car along a racing track, but only a few people realize the importance of capital management in trading.
Many people try their hand at forex, hoping that they can get rich quickly and easily. But only those who have understood the seriousness of trading and learned the rules of money management, can steadily make money in forex. Others just fail after failure, hoping for a miracle, and then leave the case, calling forex a lottery, and never admit their mistakes.