First we wish you good. You have to study modules Forex School and now until the last grade of school. Perhaps many of you think what else could I learn. I have been studying technical analysis and fundamental. Also various practical sciences other forex since Walking Lamb class. What else?
True you have learned so much analysis and forex trading techniques. And now we just stayed doing the final touches of the way trading Kita. However it is very important final touch. Forex reality has many factors and variables that should not have missed a single one. If there is only one factor that you ignore, say, factor "X", then maybe you'll be trading the whole building collapsed due to X earlier. So, see Fox Hunting lessons carefully here because here we started to get into the practical side of forex but in a more macro scoop.
Ok, first lesson we are known as Money Management. If Forex is a business, money management is one factor that determines whether a business that you live is a business class "shop" or business professionals who also run by a professional. Is not the difference between business class and professional shop there on governance?
Let us compare between a grocery store with a supermarket. Both sell food, but what distinguishes the two? Of course, supermarkets are neatly managed and rely on a good system. Not so with an ordinary grocery store when the owner entered the wind and not able to come to his shop only, the store should be closed. And which one is more successful? Grocery store or supermarket? Yes, of course supermarkets. So, do not do business with the model shop. But run by a professional!
Do forex trading also with the model grocery shop owner, but run with the model of a supermarket. And this is the deciding factor in the forex is what is called money management. Without money management, maybe you will benefit in the short term. But not in the long term.
Money management in forex is a set of rules more or less integrated in a trading system on how you control your finances during trading. Of course this is absolutely your own. Practically, money management involves the following things:
· Innitial Added Margin and Margin (if any).
Large · per transaction risk you are willing to bear.
· Maximum drawdown
· Risk to Reward Ratio
1.Margin & Margin Innitial Added
Innitial margin is the initial capital deposited in the brokerage you want to speculate. While the margin is added the additional capital that you may add to your betting / maintain the position that if any future terfloating.
From these two points can be seen that the money management begins before you even open the betting and your position first. Similarly, in other businesses, capital plays an important role in your trading future. Those who speculate with capital of $ 5,000 of course a different way of trading with a capital of $ 500.
Some brokers are applying minimum account opening is very cheap. Even at the minimum opening itself Gain Capital forex account is just for $ 250. Very small. However this does not mean we recommend you trading with minimal capital. How can any small capital demands precision and patience to open a position with the risk that you should certainly greater responsibility.
Take this example, if you open your forex account for $ 250. So by buying 1 lot on the price of GBPUSD 1.9700. With the margin collateral is $ 197 perlotnya. So your remaining funds is now a $ 250 - $ 197 = $ 53. Well $ 53 is money that you have to defend your position movement.
If several hours after you open BUY positions at these prices fell 1.9700 to 1.9647 (down 53 points from your starting position), there will be a Margin Call. Your position will be closed automatically by the system due to lack of collateral. In this situation you have to bear the losses as much as 53 points or equal to 53 dollars.
Unfortunately if the price falls to 1.9647 a few days later the price jumped even higher to 1.9800. Of course if you do not experience a margin call before then you will earn a profit of 100 dollars per lotnya. Lived the dream of dreams. Due to lack of capital, profit opportunities you turn into a nightmare sebuh called a margin call.
The incident should not have happened If for example you start your trading with modalh $ 1,000. By opening 1 lot buy position at 1.9700 and then the price falls to 1.9647 then you still have the remaining funds as much as $ 750 dollars more. This means that if the price falls to 1.8897 before a margin call occurs. Something very difficult to occur within a few days for GBP movements (and also in other currencies).
Now from here you understand the difference between trading with minimal capital and trading with not enough capital? Whatever capital can not be deceived. Without sufficient capital, for a beginner forex, that would be to go to war without preparing an adequate defense.
Then if I can I start trading with limited capital for example $ 250 and earn profit?
Can! However, careful analysis is required and extra for your patience. In the case example above, then of course you must be patient enough to wait for further price falls below the 1.97 level in order to avoid the MC on your account. It is indeed easy-easy to hard. Even for a professional though. The problem is whether it is possible after the price reached 1.9700 level he will continue down to 1.9650? Or perhaps after a fall to 1.9700, then the price will be immediately shot up to 1.9800 and thus I lost the chance to gain profit. It takes extra patience and a very careful game. Few missed the bubarlah everything.
Well than you are stressed because of lack of capital and are always threatened by a margin call is recommended for open trade with sufficient capital. How much? If you only open 1 lot each time betting and will not open new positions until it reaches 1 lot of profit or stop loss touches you, it is advisable to start with a capital of $ 1,000. If you want to open 2 lots in a single transaction then lived in it 2 times to $ 2,000. Simple is not it? With sufficient funds, you have little freedom to do manufer-manufer in your trading and reduce the psychological burden due to limited capital.
Course, the bigger will be better. Moreover innitial your margin amount 10,000 USD and the opening position just as much as 1 lot. Yes do not need to install a Stop Loss will not feel too exposed to a margin call. Simply eating a big interest rate of approximately 2000 rupiah a day. Yes okay, USD 720 thousand a year. Not if the position we profit.
That is how innitial margin calculations. So, plan carefully how you are betting on the future. In the demo account you used to be given virtual money amounting to $ 2,000 for betting. Often those who try the demo account and earn a large profit when they try it on real account boro boro-profit, that there is direct funding lost due to large losses. The problem is where? The differences are most often happens is that their initial capital at the same time it was not a real account with funds provided on a virtual account. They are not aware of this and then stuck to pit their luck with the reason they're on a demo account is the profit. Then they start trading with them only for $ 500! Yes, of course loss! The amount of prisoners who owned $ 2,000 with $ 500 of course different. Ah how naive.
Subject margin added, some people prefer to deposit their margins innitial sufficient amount on the grounds that if the future of their accounts at risk of margin calls so they can add funds (termed injection) in order to arrest him. Yes okay. Kok legitimate and legal.
Only in this case there are several factors you need to consider:
* The time between the deposit until the effective funds into your account usually 1 to 2 days. Consider the cook not to a margin call occurs within 2 days ahead. So do injection well in advance just to be safe.
* For those who love to injection, you need to know to what extent you want to stop doing injection. This is to prevent loss due to uncontrolled you use whatever money is in the wallet for injection. We have already described at the beginning of the lessons we that there is a limit where we should stop because it is too large losses with a variety of factors that are not / are too difficult to overcome.
* Consider also the cost of interbank transfers overseas who can reach 20 times the amount of dollars. Yes okay costs.
* What is the least possible profit can be reached if you do injection?
Well, if you are willing to bear the above factors, it does not matter when the injection done. As long as it is within the control of investment and open up the opportunity to get a profit, then do it.
2.The amount of risk per trade which you Willing Responsibilities
The risk per trade means if once you open a position, how large a loss that would limit your liability in case the position We are opposed to market? Later this will relate to how you build a trading system.
How can any person in any transactions, we must realize that no analysis We are forever true. Although sometimes true but it can also time frame that we use wrong. This means that if we predict the price rise in 2 hours ahead was a new increase occurred after 2 days later. Or even no increase at all until we suffered a loss.
Constraints faced by the beginner is often We are not willing to say that we are wrong and closed positions We are a loss. Thus we wait until the price is either turned back when it happened. Maybe turning. But things turned in accordance with waiting for prices that we expect is often a time full of frustration. Sometimes it can be a month. Other worse prices never go back in time for 6 months.
If you open an Open positions Sell GBP at 1.8830 on October 20, 2006 and did not put a Stop Loss. Even if your funds are unlimited, you must wait until an unknown length of time so that prices return to that point because up until this writing that is May 21, 2007 the price of GBPUSD was still in the range 1.9700! Note the picture below is marked with dashed lines in black. That is when the price is 1.8830, while the dashed line in blue is the position of GBPUSD price at the time the picture was taken.
The purpose of this point is: Stop Loss is important. And that is part of money management. Without it, the trading We are like a car without brakes. You can drive as fast as you want but of course there are times where we want to stop it?
3.Maximum drawdown
The definition of maximum drawdown is how much the loss in a row that may occur in your trading. Let us begin with an analogy: Say we have a trading system that is able to provide accuracy of 70% profit in each month. This means that in one month then chances are we get profit from trading model that we have is 70% and 30% other is a loss. Or within 100 times the transaction, the 70 times that we open position is profitable and the other 30 losses. Pretty good right?
But that was not enough. Money management determines here. What if We experience loss in 30 consecutive times that? So from the first trade to trade to thirty We are experiencing loss and then trade to 31 up to 100 profit we earn. Now the problem is whether the funds remaining after the trade to 30 is sufficient to transact in the trade to 31 and beyond? This is what is meant by pressure drawdown. What is the maximum amount of drawdown that may occur?
Perhaps there is among you who said: "Well maybe I did not experience loss in a row 30 times!" Why not? Are not we not gods? Or do not need 30 times 10 times just might have made many times we think we trading system.
Ok, go back to the case of loss 30 times in a row it. So what's the solution? The solution there are several ways:
Improve your trading system so they no longer be 70:30 to 90:10 for example.
It looks really very good, right? But this is clearly not easy. Having a system that can predict with 90 percent accurate price movements that do not necessarily require a short time if we do not want to say for years. Yes this is the best theoretical solution, but realistically this is hard.
Solution 1: Increase in capital
There are still more likely than the first solution earlier. With the increase of capital then we have a bigger buffer to hold the aggregate loss earlier. Of course the number of lots must remain open and should not be increased in every time of the transaction. But if the obstacle here is that we have limited funds. In these circumstances we must return to the first solution or the third solution below.
Solution 2: Reduce loss per transaction
Now it is a simple solution and it seems more acceptable. That is if we had been using say 10% of the fund to transact We are to determine the Stop Loss then we need to reduce it to say 5%. Look lho mean, if you use 10% with the capital in 1000 that means your stop loss amount of 100 points (1000 x 10% = 100), whereas when using a 5% then your stop loss amount of 50 points.
Let us see the following case example. Say we use a capital of $ 1000 and only open a position as much as 1 lot every time their transactions. Let us see how the comparison if the drawdown We experience as much as 30 times (30 times drawdown hegh ... really making We're sunk. Even I, who wrote it can not even imagine if it happened I was.
Thus it is concluded that the smaller the percentage of capital is used more and more secure trading we have become. Yet of course there are obstacles you need to go through to be able to reach such a small percentage. Among them are Can You Stop Loss trading with a narrower than usual? Now this needs to be reconsidered.
So what percentage is the best? Some professional traders say the best scale is below the 2%! So 5% was still too large indeed. With 2% if you have capital amounting to $ 1,000 then the Stop Loss you need to be shifted to just 20 points only. Very small for a Swing Trader. But that is the correct percentage. That means if you want to play swing then use a bigger budget. Remember, capital can not be deceived.
4.Risk to Reward Ratio
Risk to reward ratio is the ratio between the risk you take with the profits earned each time a position opens. In practice this will be translated later on how many points Stop Loss and Limit large that you use every time a position is taken.
Beginner traders often determines the measure of their limits but did not use Stop Loss. The reason: if use of Stop Loss and Limit, Stop Loss is more often touched her so often lose. So eventually most beginners betting using a Stop Loss Limit but forget about them.
Now it is so classic symptoms that occurred in almost all beginner traders. Actually, okay We speculate in that way. Positive side of such trading is morally We will be getting better from day to day due to any position taken over many of its profit and loss is never even.
But in terms of risk to reward ratio, this is really dangerous to the trader's own. Say limit is taken as many as 30 points. Stop Loss does not put up with the comparative advantages and risks to be 30: ~ aka 30 points versus infinite. This is because if the risk actually realized then that means all your funds will be depleted due to the limitation of risk itself is a Margin Call.
Ratios like this really makes no sense it. Of the 100 times we transact and 99 times we win and with only a one-time transaction we have experienced a fatal error then all the capital we lost profits and lost! The world is full of graves forex trader beginner model like this. Who wants to catch up? Lol, not to frighten you know, it's for your interest also to understand that betting that there is a risk that needs to be controlled.
Now therefore it is important to manage risk to reward you with the correct ration. So forget about trading without a Stop Loss! If your trading in your Stop Loss is frequently touched so maybe you need to reset the trading system and to determine and limit your Stop Loss. Essentially, do not blame the existence of a Stop Loss if you liquidated the position because of it. Stop Loss existence here is to limit your losses and not for your membankrutkan.
So, how much risk to reward ratio is good? Of course, the greater the reward and the smaller the risk is the best choice. Consider the following examples:
If you determine your risk is your reward 30 points while 60 points is the capital of $ 1,000 and there is only 1 lot open positions each time a transaction. Say in 50 times as many transactions you experience any loss of profit as much as 30 times and 20 times then at the end of your transaction to your 50 still unaccounted profits despite of the number of transactions more loss than profit.
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