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Money Mangement Suggestions for Beginners

By: London NYAM from the Global-View Forums London NYAM 13:26 GMT May 28, 2008 Subject: Money Mangement Suggestions for Beginners   Money Management Ideas (for beginners): 1. Trade with an account that you are ok with losing (i.e. it won’t devastate your life nor upset your wife/husband) 2. Only a maximum of 1% of capital can be risked (i.e. your stop loss exit point) in any single trade. 3. All trades should have a risk-reward ratio (at start) of at least 2:1 4. In a single week (or month depending on your tolerance and activity level) if closed trades exceed 5% loss no further trades are made until after an evaluation period (back to the charts and your trading journal). 5. All trades must be explained in writing plus chart pattern prior to trades initiation or immediately after! Example: MAXIMUM LOT SIZES PER Risk SET Example $5,000 Capital Starting Capital $5,000 Risk per trade 0.01x = $50 The above principles are scaled every month or week to adjust for changes in your capital. BEFORE entering any trade know 1. Why is this an opportunity? 2. Where is your stop loss? I.e.: Where are you wrong? 3. Where is/are your profit target/s? 4. And from 2 and 3: What is your risk reward ratio? 5. Calculate your maximum position size based on your s/l (Work backwards) Enter trade: 6. Place your stop loss with your entry order! 7. Place your profit target in advance for at least 50% of your trade. DURING Trade 8 Other than raising s/l (lowering your loss level) or taking profit on half to reduce risk LEAVE YOUR TRADE ALONE! AFTER Trade 9. Write a brief note to self (in your trading journal) as to what went right or wrong with your trade and why you think that was the case. This is especially the case if you broke any of the above rules. You will never get wiped out if you stick with this technique assuming that you are right 51% of the time. You need this to stay in the market long enough to get your percentage up to 67% or whatever you are capable of. Without it you will probably wipe out. On a capital account of $5,000 you will have to be a pro trader to make money. What I mean by a pro trader is someone who has a high hit rate and the nerve to stay in and get stopped out without overtrading or jumping ship when he gets the trend right (even pros need reminding sometimes). On $5,000 if you want to last you cannot wager more than $50 on a trade. I know that means that you will probably find it difficult to make money and live on trading. But that is only in the beginning. Open up a trial account with one of the banks. Hop from one to another and trade paper. It’s not the same but you will get extra real time experience while you save enough cash to do it for yourself. Don’t take other peoples trades but use others to stimulate your trading style or alert you to some trade that you may have missed. If you only trade one or two patterns that you have researched but find in many currencies, so be it, all the better you will gain confidence in when they work and when they don’t. Try being the absolute expert in H&S patterns or triangles or MA crossover of your favored time frame or perhaps news items. It’s about staying in the game until you can over the long run make more than you lose.