Money Management Tips for Forex Trading

New traders may be very eager to get in on the forex trading action, but before making any commitments, it is important to learn how to manage forex money properly. By using different techniques, traders can protect their capital and enjoy more profits while trading. Experienced traders will already know that using money management techniques will greatly increase the chances of becoming successful and enjoying profitable gains. In basic terms, money management is just one way to control the risks associated with trading forex online and this is done by scaling the position size, either down or up.

When trading in the market, one should be responsible and should only trade with funds that can be lost. Some traders will suggest to only risk 2% or less of the trading capital on single trades. Unfortunately, it is possible to have a multitude of losing trades right in a row, but by trading just a small percentage, it remains possible to stay on the positive side, waiting for that lucrative trade.

One thing that traders should keep in mind is that they should only open a trading position when the profit to be earned is greater than the risk involved. For example, a 1:2 risk/reward ratio will indicate that if 15 pips are risked, the profit should be 30 pips. Using a risk reward like this will allow traders to make money even if most of the trades are lost.

Many traders will make use of averaging up, which is also referred to as Pyramiding. This is done by increasing the size of any winning position by adding more each time the position gains a specific number of pips. This can be one of the most effective money management techniques used by traders and can maximise the returns on the investment.

Averaging down is another technique that is used and this is the opposite of Pyramiding. With this technique, losing positions are opened at low prices than the initial position, which will eventually lower the average price of the position’s entry.

It may take some time to master these techniques, but by being aware of their existence and learning how to use them, even the newest trader can take necessary precautions to avoid risks and enjoy more profits while trading.

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