It’s a sobering statistic that 100% of Forex traders who blow up their account don’t understand how to apply good Forex trading money management. The sad thing is, many of them proceed to build up another trading stake, come back into the market, and do it all over again. They never learn the basics of money management in Forex that would actually save them from ever blowing up their account again, and give them the Forex trading income they are looking for.
As it stands, just by reading this article you’re already far and ahead of the average beginner Forex trader, because you’re on track in learning the Forex trading money management basics. By the end of this article, you’ll know how to control your risk like a Forex Market Wizard and achieve the Forex trading income you deserve.
Forex Trading Money Management Basics
The fundamental principle of money management in Forex is simple: protect your capital. Most professional Forex traders limit their risk per trade to between 2-4% of their capital, because it’s the best per trade risk for optimum long term capital growth. Risking 2-4% of your capital virtually guarantees that you will never blow up your account, while ensuring that you get the highest possible capital growth. It’s the sweet spot for risk in trading that’s been proven time and time again by the research done by the top minds of trading and risk management.
Perhaps you already know about the 2-4% risk per trade rule in Forex trading money management, and you’re already applying that into your day to day trading. Fantastic! That said, as a smart Forex trader, you need to recognize that there will come a time when your profitable Forex trading system will no longer work. Every Forex Market Wizard knows that no matter how good their system is, there is still that probability of sudden failure, which is why they have one more step to control their risk. If you want to emulate the trading performance of the Forex Market Wizards, then you need to learn the secret of the “failsafe point”.
How To Control Your Risk Like A Market Wizard
“Failsafe points” mark significant drawdown milestones in your trading account equity. For example, many Forex Market Wizards set their “failsafe point” as 20% of their trading account balance. That means that when they lose 20% of their trading account, they drastically reduce their risk per trade and even stop trading entirely until they have identified the issue in their system. While the 2-4% rule is good enough to keep you out of trouble most of the time, if you’re really serious about protecting your capital to ensure long term profitability, then you can really take it to the next level with “failsafe points”.
Every Forex Market Wizard will tell you that 90% of trading success is down to Forex trading money management and risk control. You can achieve that by limiting your risk per trade to 2-4%, and enforcing “failsafe points” in your trading. That way, you’ll never blow up your account and keep your capital safe so that it can keep working for you to bring in the Forex trading income you desire.