Forex Supply and Demand: Money Management - ForeXposed

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Friday, March 17, 2017

Forex Supply and Demand: Money Management

As I have told, that we cannot manage the price movements, we do not know where the price will move and we don't have to be a diviner. If there is only one component in the forex trading that we can control for real it is money management, because it is entirely in our hands. And good money management can save you from errors in analyzing the forex market.

Let's look at a practical example of the application of money management (MM) on the daily forex trading activities by using simple calculation.

Take for example two forex traders with the same initial capital that is $1.000 and experienced a loss 5 times in a row:

A. Trader A has loss risk tolerance 2% of the capital per trade.

  • Trade 1: $1.000 - $20 = $980.
  • Trade 2: $980 - $19 = $961.
  • Trade 3: $961 - $19 = $942.
  • Trade 4: $942 - $18 = $924.
  • Trade 5: $924 - $18 = $906.
After 5 times of trade, the initial capital of Trader A is reduced about 10%.


B. Trader B is more aggressive, his risk tolerance is 10% per trade.

  • Trade 1: $1.000 - $100 = $900.
  • Trade 2: $900 - $90 = $810.
  • Trade 3: $810 - $81 = $729.
  • Trade 4: $729 - $72 = $657.
  • Trade 5: $657 - $65 = $592.
After 5 times of trade, the initial capital of Trader B is reduced about 40%.


In this case, Trader B will experience an incredible psychological pressure and in the end often difficult for taking decisions based on an objective analysis. The greater the losses, the greater the percentage of winning trades that should be achieved to reach the break event point (BEP).


Trader A:

  • Capital: $1.000.
  • Current: $906.
Means, Trader A only require about 10% to reach the BEP.


Trader B:

  • Capital: $1.000.
  • Current $592.
This means Trader B needs around 68% to reach the BEP. Quite hard and will give a psychological impact. Your mental will be stirred because there is a pressure to get back.
Forex Supply and Demand: Money Management

So ask questions to yourself:

  • Are you ready to experience 5 times of loss in a row?
  • Can you lose the funds about 40% of the initial capital that is so valuable in just 5 times of forex trading?
  • Do you have the confidence to produce a winning trade to getting back 68% of capital?

The conclusion is:

  • Use the risk percentage which is capable of being managed.
  • Trade Position should not exceed the tolerance which is capable of being managed.
  • Follow the Trade Plan that has been prepared and do not deviate from the first plan.

The success in trading financial instruments business, whether it's stocks, commodities, bonds, forex investment, binary trading, etc, was not built in one day. Trading is a long-term business. To be able to survive in the market we need to be able to keep the capital tightly. We recommend that you do not throw the money that had been difficulty obtained, and makes the forex market as a social institution by making yourself as a donor in each moment.