Forex money management is a collection of methods adapted to all trading platforms to reduce trading losses and capture gains. We also feel that having a strong knowledge foundation and a competent trading system are important components of an overall money management strategy.
Is Forex Money Management Necessary?
Yes, if you have a good trading method in place and are using it effectively. Most forex traders believe that money management is crucial because they are often inefficient. Three scenarios could happen.
Scenario 1: if your forex trading system is ineffective and does not consistently give up positive pips with demo trades, you do not need money management because you will never see positive pips on your trail or live trades anyway; applying forex money management to an ineffective trading system is pointless.
Scenario 2: if the forex trading strategy you’re using is profitable, but you’re not using it the way it was intended, your demo trades will all be losers. It is futile to use money management until you understand how effectively.
Scenario 3: your demo trades will have positive pips if the forex strategy effectively makes pips and you correctly implement the system. In this circumstance, forex money management, and more crucially, profit management, becomes critical; in this situation, you must learn to manage your money and gains, as well as the rare tiny losses or break-even stop-outs that will occur.
I’ve heard many forex traders talk and visit about how important forex money management is, yet this is a subjective statement. The moral of the article is simple before you think about management, find an excellent forex trading method that earns positive pips.
Money and profit management are vital to us at forex early warning since we have a complete trading strategy that produces pips when correctly implemented. Having a proven forex trading technique that generates pips is good money management in and of itself.
Forex Money Management Versus Profit Management
Money management is of relative importance, as we’ve already stated. Even if you utilize solid forex money management, you will lose all of your demo trades if your forex trading strategy fails. If you have a good forex trading method and you study and use it correctly, profit management becomes critical to take advantage of those profits.
Other forex money management strategies
Other tactics can be used in forex money management programs by traders.
Fore traders, for example, should get familiar with concepts of support and resistance. Scaling out lots or exiting transactions when a currency pair approaches a strong support or resistance level is a good idea. Drilling down the charts on 28 pairs using several time frames daily is useful since it keeps you informed about market circumstances, whether they are trending, range, or turbulent.
It’s also beneficial to know the forex market, particularly how individual currencies affect market movements. Traders must abandon technical indicators at some point because they have failed them in their desire to make pips.
Conclusion
Conclusion on forex money management: first and foremost, forex traders must ensure that their trading is capable of generating pips. Then they can use money management and stop order strategies to improve their trades and continue to make consistent positive pips week after week.