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Money management strategies money management in Forex
In the currency market, as a rule, for determining the strategy of money management begin to be interested in only once seen serious losses in the process. Paying attention to trading system and psychological aspects of the workflow, the speculators did not immediately get to money management in Forex.
Money management (MM) - money management strategy when trading. There are erroneous assumptions that MM is necessary in order not to overstate the risks. Of course, the salvation of the Deposit from the sink is one of the tasks of money management, but not the only one.
The second task of the MM is that would be effective use of money-capital involved in the trade. It turns out that a certain risk will be between two extremes:
• high lot and high probability of losing the account
• low lot and high probability of getting the minimum profit
The Golden mean money management - moderate risk, in which you can count on significant income as a percentage of the Deposit.
Popular options money management
Strategy and money management is chosen by the traders, based on the characteristics of the trading method, which has decided to use speculator. Now we list the most popular methods of money management on Forex, as well as, consider their advantages and weaknesses:
• fixed lot
• the percentage of the Deposit
• calculate risk on all capital
Fixed lot. The trader chooses a lot size that will be used in the trading process. Even if the expense will gradually increase or decrease, it will not affect the volume of transactions that merchant. For example, if a speculator was $1,000, then the amount has increased to $1,500, the person will still continue to work the same lot.
The advantage is that if after a successful trading period will start during failures, the loss, the speculator will get all the same lot, and not increased value. The disadvantage stems from the advantages, because with the increase in the Deposit volume of transactions remains the same, and this means that the capital is gradually used less efficiently.
One money management for successful trading will not be enough. You need a reliable trading strategy, for example, Breakdown indicator-free system.
The percentage of the Deposit. This is probably one of the most effective options of money management when trading with stop loss. It all starts with the fact that the trader determines the original data on the foreign exchange market. Assume that you Deposit $1000 and trading system for Forex trading is already selected.
Now decide what percentage of the total amount he can afford to risk in a single trade. For example, was selected the value of 2% and, therefore, more than $20, the merchant will not allow yourself to lose per trade. Next you need to look at the Stop Loss value in points, or another condition that has been chosen to limit the damage.
If the Stop Loss is planned to be used, for example, a value of 50 points, then the allowable loss ($20) divided by the number of points (50) and obtain $0,4 per item. This means that the optimum lot in this Deposit and other selected terms will be 0.04 lots (provided that 1 lot = 100.000 of base currency, in our example, dollars).
Further, when the Deposit increases, for example, up to $1,250, 2%=$25, and this means that $25 will be divided into 50 points. As a result, the lot turns out to be 0.05. Method, at first glance, it may seem difficult, but it is his many professional traders believe that the best option money management on Forex.
Similar situation change of the working volume of the lot will occur when reducing the size of the Deposit.
In this case, the strengths and weaknesses of this MM re-linked. While profit is increasing, and will increase a lot, then what will allow you to get more money. At the same time, if a trader starts a bad period, the losses would have obtained a larger lot.
At the same time, if trade did not work out, then the lot will decrease as Deposit changes. It turns out that new loss transactions would be already obtained with a smaller lot, it will slightly slow down the process of loss of capital.
Calculation of risk for the entire capital. This approach is typically used in systems based on the martingale strategy or for aggressive trading in Forex. The essence of the method lies in the fact that the risk on one transaction or one series of agreements (trade averaging) is equal to 100% of the bill.
For example, when using averaging strategy and martingale the person can determine for themselves the following trading conditions:
• Exhibitor lot increase of 1.6
• step between orders 30 points
• Take Profit = 10 pips
• maximum number of orders - 8
Taking into account these trading terms, a trader can understand how a lot he needs when the amount of capital that money is enough to cover the opening 8 deals. It turns out that the optimum will be the initial lot, which, when all given conditions will allow the trader to enter into 8 agreements.
Thus people expect the lot to be taken for the conclusion of the first transaction in the series, that would be enough money to carry out all the planned operations in the average.
Money management and efficient use of capital
Money management is responsible for the efficient use of funds. Is a strategy to be followed by the trader during the entire time work on selected enterprise method. In the management of capital is also a reinvestment. There are three types of relationship to profits on the market:
• full reinvestment of net profit
• partial reinvestment of income
• no reinvestment
In other words, in trading it is possible to completely withdraw the profits arising in the trading process. Set a certain time interval, after which a person takes all the profit that was obtained, leaving on account of only the amount with which he started to work.
Partial reinvestment is reduced to determining the profit share, which will be removed at the end of the selected period. The share of withdrawn income can be more, equal to or less than the part which remains on Deposit.
Full reinvestment refers to the strategies and money management when the trader leaves all their earnings on Deposit. This can be done to reduce the risk percentage or lot increase and the increase in total trade turnover. In both cases, the money earned in the market, as well begin to work for the speculator.
Usually strategy money management is selected before the start of trading. Selects the best options based on the beliefs of the trader about the risks, characteristics of the trading system, market volatility and so on. People may eventually improve or to understand the percentage of risk during trading, but the MM rarely changes completely when working with the same system.
Even with a quality trading system, without setting MM, the person will not get the full impact of their actions. Following the chosen strategy and money management, a trader much more self-confident in the Forex market.
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| Category: Forex | Added by: (06.11.2017)
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| Views: 371
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