Training for Traders: How to Increase Your Trading Profits Through Smart Money Management Techniques By: Marcello Ducille From: http://smartpassiverevenue.com/
Most Forex traders only think about how much money they will make but only a few think about how much money they are risking and could lose. Money management is definitely the number one element that every profitable trading strategy possesses. When you fail to apply risk control rules to your trading you are lowering your possibilities to ever becoming a highly profitable trader. In this article I will be covering some of the most important and effective money management techniques that I use on my daily trading.
Use trailing stops to lock some of the profits: A trailing stop is similar to a regular stop loss with the only difference that a trailing stop will move as price fluctuates. A trailing stop can help you to protect your account against unexpected market movements and to protect part of the profits while you are still in the market. There are different types of trailing stops, some trading platforms allow you to use a pip based trailing stop, some others allow you to use a bar based trailing stop, and some even a percentage based trailing stop.
Never forget to use stop losses: I strongly believe that stop losses are the most important part of your trading strategy. A trader that doesnâ€™t use stop losses is exposing himself and his account to total chaos and ruin. I have heard of thousands of Forex traders who disrespect risk and start to trade without a stop loss order and end up losing most or all of their trading funds. No one likes to lose but you should always be ready for the unexpectable and your stop loss is your insurance that you will not blow up your trading account.
Only take trades with high win to reward ratios: A risk of reward ratio is the measurement of the expect returns divided by the amount of pips or money at risk. For instance, if you are expecting to make $100 and you are risking $50, that’s a 2:1 ratio. The best trades always have high risk to reward ratios, this is why is a good practice to only take trades that have high risk to reward ratios. Only use trading strategies that have a well defined set of risk management rules: There are many trading systems out there that provide you with backtesting reports and tell you that the systems can double your money every month. The truth is that the only reason why they are able to produce this “amazing” results is because they normally don’t use any stop losses or money management! This of course increases the profits but it also increases the risk exponentially. This is why is not a good idea to waste any time with a trading system that doesn’t use proper risk management. Remember, professional traders understand and respect risk they don’t try to eliminate it. Don’t take sporadic or impulsive trades: Taking impulsive trading is one of the quickest ways to blow up your trading account. Impulsive trades are any trades that are entered without a plan or a strategy in mind. There is a big difference between taking impulsive trades and taking discretionary trades. The discretionary trader has a plan that he follows to the letter, the impulsive trader is just shooting in the dark. Forex trading requires lots of dedication and patience and to increase your profits you need to increase your abilities as a trader. Check back soon as we will be publishing more useful articles in here. To your success, Marcello Ducille Professional Online Entrepreneur/Senior Forex Trader
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