Understanding forex money management has been the crucial stepping stone in my forex trading career. I have learned to establish very strict money management 101 rules considering the high volatility nature of forex market.
The goal of understanding money management 101 rule is to create a success blue print.
Every forex traders must have a success blue print, then and only then the trader will be ready to make first trade.
Everyone will suggest newbies to start first with a demo practice account. I have followed this sage advice too and I highly recommend it to all the newbies.
You will be glad you did it because I will tell you how horrible I felt when I first start trading with my real money.
When I started actually trading with my own hard earned real money, something lurked up every time I placed a trade as if a monster is waiting inside me to terrify me and chase me out of the market.
I could not get my eye off of the computer monitor once I had live trade. I could not sleep. One trader told me once ...
Managing money requires more skill than making it.
I would often get in too early and get out too early. Or I would wait too long and I would miss the perfect opportunity to bank some handsome PIPs in my cash register.
The problem was that I was not employing proper forex money management system. Essentially, I was trading emotionally.
I was on emotional roller coaster ride, every time market moved one pip in my favor I was amnesia high and every time market moved one pip against me I was terrified as if a monster lurking up beneath me was about to devour my baby PIPs, me and myself.
Trading solely based on emotion is very very tasteless way to trade forex. And also the only predictable thing about forex trading....a sure and shortcut way to doom to failure.
For example, think of it as making a trip from San Francisco to New York, a whopping 2578 miles long journey by car.
If you have mapped out all your routes detail such as hotels, gas stations in your GPS navigation system before jumping on your car you will more than likely reach New York in time. Whereas if you just jump on your car without any plan whatsoever, it's more than likely that you will get lost, confused and more than likely never reach your destination.
Do you get the picture where you will be heading without money blue print?
So if you have not already created your success blue print, head out with money management 101 basics. Study them meticulously just like Sherlock Holmes studies crime scene.
I have outlined below seven basics steps that I employed while creating my success blue print.
It has served very well for me. I hope they will serve you as well.
Step 3: Understand calculating entry size
Step 4: Understand buffer building
Step 5: Create your own successful equity building blue print
Step 6: Create your own forex trading fulltime blue print
Step 7: Graduate to become a fulltime forex trader
Think you can now swim with the sharks without being eaten?