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Currency Chat RSS Feed

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Welcome to Currency Chat - The lounge for the bored or chatty Forex trader.  Posts of any kind, including off-topic, will be allowed here, with particular emphasis on money management, and the psychology of trading.  In short, when you blow out your account and need to vent, we're listening!

MONEY MANAGEMENT

OK, so we are obviously all trading to make money besides the comraderie and adrenaline that goes with it....so how do we get from point A to point B?  Well - that is simple - you learn how to make winning trades and employ good money management skills.  For the winning trades, I highly recommend you visit these sister sites for the best assistance on everything from technicals to full trading systems. 

http://investorshub.advfn.com/boards/board.aspx?board_id=5392

http://investorshub.advfn.com/boards/board.aspx?board_id=5125

For the money management, I hope you will review some of these examples and see that compounding small gains is the key.

$1000 Capital with 1% Compounding Gains
Trades Starting Capital Ending Capital
1-50 1000.00 1628.35
51-100 1644.63 2678.03
101-150 2704.81 4404.38
151-200 4448.42 7243.58
201-250 7316.02 11913.03
251-300 12032.16 19592.54
301-350 19788.47 32222.52
351-400 32544.74 52994.18
401-450 53524.12 87155.91
451-500 88027.47 143339.38
501-550 144772.77 235740.50
551-600 238097.91 387706.33
601-650 391583.40 637634.17
651-700 644010.52 1048673.45

Now, I'm sure some of you are saying, "yeah that is 700 days or 700 trades", but how many people realize the power of that little 1%, and instead aim for the fences?  To illustrate another money management methodology from a wise young trader, strongtower, you can also establish a "per pip" goal.

$1000 Capital with 25 Pip Gain (**assumes 20 trading days per month**)
Month Amount of Trade Dollars Per Pip Daily Gain Ending Balance
January 10K 1 25 1500
February 10K 1 25 2000
March 30K 3 75 3500
April 30K 3 75 5000
May 60K 6 150 8000
June 60K 6 150 11000
July 80K 8 200 15000
August 80K 8 200 19000
September 100K 10 250 24000
October 100K 10 250 29000
November 150K 15 375 36500
December 150K 15 375 44000
January-??? 200K 20 400 52000

Now, for those of you experienced in Forex, you will probably notice that mid-year in the above chart, you have plenty of capital to be trading with more risk.  That is something to decide from your own comfort level, but you can see clearly that a small amount of units with a consistent daily net of 25 pips will earn you a nice income!  Notice I said net....if you think for one moment that you will never have losses, you should go back to your demo account immediately and start over.  The important point is NET.  You may also have a down day and have to "make it up" another....still, you get the point of the illustration.  CONSISTENCY IS KEY!

Our next example is far riskier, but when you look at the results, you will be tempted....this is NOT for the faint of heart, nor should you attempt this unless you have a very high percentage of winners first.  Credit goes to Ataglance2 and Daiello for the idea - thanks for the input!

$1000 Capital, 50% "Win" Ratio, S/L of 20 Pips, T/P of 50 Pips (**with 100:1 Leverage**)
Trade Number Starting Balance Traded Units Margin Required Gain/Loss Ending Balance
1 1000.00 30K 300.00 -60.00 940.00
2 940.00 25K 250.00 125.00 1065.00
3 1065.00 30K 300.00 -60.00 1005.00
4 1005.00 30K 300.00 150.00 1155.00
5 1155.00 35K 350.00 -70.00 1085.00
6 1085.00 35K 350.00 175.00 1260.00
7 1260.00 40K 400.00 -80.00 1180.00
8 1180.00 40K 400.00 200.00 1380.00
9 1380.00 40K 400.00 -80.00 1300.00
10 1300.00 40K 400.00 200.00 1500.00
11 1500.00 45K 450.00 -90.00 1410.00
12 1410.00 45K 450.00 225.00 1635.00
13 1635.00 50K 500.00 -100.00 1535.00
14 1535.00 50K 500.00 250.00 1785.00
15 1785.00 55K 550.00 -110.00 1675.00
16 1675.00 55K 550.00 275.00 1950.00
17 1950.00 60K 600.00 -120.00 1830.00
18 1830.00 60K 600.00 300.00 2130.00
19 2130.00 65K 650.00 -130.00 2000.00
20 2000.00 65K 650.00 325.00 2325.00
21 2325.00 70K 700.00 -140.00 2185.00
22 2185.00 70K 700.00 350.00 2535.00
23 2535.00 75K 750.00 -150.00 2385.00
24 2385.00 75K 750.00 375.00 2760.00
25 2760 80K 800.00 400.00 3160.00

Now, the system above does have a couple of additional rules, if you will.  The author recommended starting with 5K, and using the same calculations over 20 trades would net you around 38K.  Since so many people reading this board are trying to start with smaller numbers, I used 1K if for no other reason than to show good money management is CRUCIAL!  You can be wrong 50% of the time and still come out with a 200% return (if you have one additional trade for 50 pips go your way over the 50% win ratio).  But you MUST limit your losses and be sure they are significantly less pips than your gains.

More to come....

 

 

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