How much money should I risk per trade?
November 18th, 2009
I bet you are eager to learn the secrets to be a profitable trader
If you are struggling to make some extra bucks through trading then you have landed at the right place. You see some years ago I was just like you may be right now. I was at my ends wit as I could not put the pieces together.
In my early days of trading I did a common mistake that most new traders tend to be a prey of, which was ignoring my Money management rules. This one mistake was the cause of my failure in the currency market.
Trading is no rocket science and the attributes to be a successful trader does not necessarily lies in the system itself. The hype surrounding forex trading has been going on for a while now attracting a lot of new traders along the way. Traders new to forex tend to get blinded by the huge amount of money they can make on the market. This one track mindedness account for their downfall as in doing so they tend to ignore their Money Management rule.
Money management is in other words the back bone of your trading. Having well thought rules and sticking to them will help you stay in the FX arena for longer. Bear in mind that trading is to some extent a game of probability, a reason why to have a good money management rule in place.
To make things easier, I have outlined those critical Money Management rules below.
* Risk only 2% of your total account size per day
* Your trading size should be less than 1/10th of your account size.
* Take partial profit each time you reach an area of heavy support/resistance. Once this is done bring your Stop Loss to Break-Even thus protecting you from any unpleasant surprises.
* Always use a decent Stop Loss so that you are not thrown out of the market too quickly. I use a 15 minutes chart to access my SL when I trade off a 5 minutes time frame.
However simple those rules are, those new to trading always tend to forget about them. Applying those rules accordingly will without any doubt minimize the risk and alternatively help you stay in the game long enough to profit from the market.
Here is a guide to give you an idea of trading lots:
1 Lot = 100.000 Units of a currency. Pip value = 10 Dollar
0.1 Lot = 10.000 Units of a currency. Pip value = 1 Dollar
0.01 Lot = 1.000 Units of a currency. Pip value = 0.1 Dollar
Taking into consideration that you are risking only 2% of your total trading account, your next step will be to pick the right lot size to suit your risk level.
For more information on how to become a super successful Forex trader, read my full review of Top Dog Trading and Candle Charts and grab your copy of FREE Forex Video Courses.