THINK PERCENTAGES AND MONEY MANAGEMENT

This was the Email Response I got from the $236 video challenge and I loved it so much that I had to share it!

People don't realize that it's not how much you have in your account that determines success. Whether you win or lose, its all based on percentages. Its still the same percentage of the account gained or lost on an account with $100 as it is with $10,000 or even $1,000,000. 5% gained is $5 on the $100, $500 on the $10,000 and $50,000 on the $1,000,000. The actual returns, money wise is different.. but the percentage gained is the same. People who say success isn't possible with a small account, don't know their percentages well.

You can successfully grow a very small account with proper knowledge and discipline. In fact, its smarter to start with a small live account until you can trade with discipline and confidence; that way you don't lose as much initially. A small live account is training grounds to build a larger account.

What's the point in adding funds to your account if you can't build the little you have in your account already?? If you're losing and not gaining consistently.. putting more funds into your account is just going to ensure that you lose more! It is the consistency of applying a good strategy, not the account balance that gives a trader the advantage.Hopefully traders understand the value of thinking 'percentages', instead of account balances.

If you think in percentages, you also understand the value of money management so much better.

For example, if a trader loses 50% of their account, it requires a 100% gain (double!) to get to break even. Whereas, a 25% loss requires only a 30% gain (a mere 5% over the loss) to break even.

A good trading system combined with strict disciple, and good money management will lead to success for any trader, no matter what their account size!
HAPPY TRADING!!!

Thanks Steve!!!
LOVED IT!!!!!!!!!!!!!!!!(^_^)!

Guest post #1 Money Management

Since I only know what I know, I have invited some other seasoned traders to share some of what they have learned over the years as well. I hope that you will find these posting helpful. As always take it slow, be patient and exercise discipline.




Subject: Money management

Hi Traders Friend,

I'll focus this post on money management which is one of the most important parts of trading. The first rule of money management is to preserve your capital. Simply stated, be patient and wait for a good setup according to your own strategy.

Professional traders only risk between 1% to 3% per trade. I personally risk 2% per trade. So how can you determine your risk and keep it between 1% to 3%? I personally use a website calculator at:

http://www.facebook.com/l/a4c62;www.forexhit.com/calculators/aec/allocation-efficiency-calculator.htm


You can pay for a calculator that you can download but the good ones cost about $ 100. Or you can use a free one on a web page. The choice is yours.

You need to know how many PIPs you may have to loose in order for the trade to be invalidated. This depends on your level of tolerance, your trading style, and your trading system. That is another lesson in itself so let's just stick to the task on hand. :)

So let's say you have $ 2,500 in your account and your risk for the trade is 50 PIPs. If you risk 2% of your account for the trade you can only trade one mini lot for that trade. If your risk for the trade is 25 PIPs with the same amount of capital than you would be able to trade 2 mini lots.

If you only made 25 PIPs per week profit, in less than a year you will double your account. Just 25 PIPs per week. You don't have to hit "home runs" every time to grow your account in a substantial way. Nor do you need to risk a large amount for every trade to grow it substantially either.

By keeping your risk low, when you get on a loosing streak (also called a draw down) you can take quite a few hits in a row and not do severe damage to your account and to your trading psychology. Every person and every trading system has draw downs. George Soros and Warren Buffett have had plenty of draw downs, but they keep their risks low and are still Billionaires.

I hope this quick post helps you to start understanding the basic principles of money management.

Alexander.

Get 10 Trading Lessons FREE Click Here


This blog is not in anyway an enticement or solicitation to trade in the Forex Market. These tips are for informational purposes only and are not to be substituted for legal advice or council. I have written this blog in hopes that it will help you to avoid some of the terrifying pitfalls I had in the Forex Market before I learned better.

Risk Disclosure: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you need for living expenses and cannot afford to lose.