Skip to content

The 3-Step Approach to Forex Money Management and Risk Control

This article makes perfect sense to me Nial…… The four trades example seals it. Nial Fuller January 22, at 5: Nial is a man i do respect. I love the simplicity of your trading methods. Sam May 24, at 3: May 5, at May 10, at 9:

Forex Trading Money Management An EYE OPENING Article - Everyone knows that money management in forex trading is a crucial aspect of success or failure. Yet most people don't spend nearly enough time concentrating on developing or implementing a money management plan. The paradox of this is that until you develop your money management .


This is where the temptation to over trade occurs. Or, the maximum risk does not matter so much as long as you have trades with a risk to reward ratio of 1 to 3 as a minimum.

Can someone please clarify for me? My idea is simply this.. I try to show people the idea that the money in your account is merely the money you use for margin, it should not be the entire net worth of the trader as in.. Thanks Nial, I have been a sucker for this. This makes all the sense in the world. I may blow an account up learning, but hey I thought it was money we were supposed to be comfortable losing. If I stick to great setups I can afford to wage more per trade.

So much truth to this article…………. I love the simplicity of your trading methods. Until recently, I was trading Futures Contracts and getting smashed from pillar to post. The risk is far too great for a small trading account.

Thanks to FOREX and your Course, I can manage risk, have wider stops if required, and sleep at night knowing I have a fighting chance of winning more trades than I lose.

Choosing the right Price-Action Setups is the key. I totally agree, it is my view as well. Perhaps, not deserve to win 2 to 1 against us yesterday in soccer, but certainly in this you win mate. If a trader does not aim above 1: So you determine you position size by what you feel comfortable with and also by the quality of the setup.

Thanks Nial for the article and all other free training material published on this website. They are really eye-opening. I think the most important and also tje most difficult thing is to have a strategy that consistently gives you an edge to make money. Will see how it works out. So many people stress the importance of only risking 1 to 2 percent of your capital per trade. I will apply your risk to reward method as outlined in this article Nial!

Thanks again for another eye opening experience! This article makes perfect sense to me Nial…… The four trades example seals it. Thank you for the article…I do my best to keep within my limits on each trade as the article has explained…very tempting to increase the percentage when on a winning streak, i must addmitt…thank you for your time….

A very apt topic. People deffinitely need to set 2. If they learn your price action trade mehtods and gain that edge in their trading, they can have the relative comfort of controling their risk by using the proper position sizing per trade.

In other words, if a 2. Thanks again Nial for helping me and other traders around the world with what your course teaches, and for your ongoing input in the traders forum. Nial, thanks very much for this lesson. I have been trading without understanding an knowing actually how to size my lot in regard to my portfolio. I think i got some titbit here. Nial thanks for your experienced insight. After starting with a very small account and winning a number of trades I started on a losing streak.

Then the over trading started. Which as you say in the article make it almost impossible to recoup your losses without an extraordinary run of really good trades. After reading your article I plan to implement your style of risk to reward in my own trading.

It just makes more sense. Risking the same dollar amount per trade using the risk reward strategy is definitely the way to go for me. I completely agree with you wider stops has nothing to do with an increase in risk. Position sizing it what determines it so glad you make this point here. Too many trades get caught up in how wide the stops are.

I also like the idea for traders like myself who have smaller accounts should take profits at pre-determined intervals. The target should be clear before entering the trade and not left open because the market can change too quickly for those large profit targets to be had.

Your email address will not be published. Any Advice or information on this website is General Advice Only - It does not take into account your personal circumstances, please do not trade or invest based solely on this information.

By Viewing any material or using the information within this site you agree that this is general education material and you will not hold any person or entity responsible for loss or damages resulting from the content or general advice provided here by Learn To Trade The Market Pty Ltd, it's employees, directors or fellow members. Futures, options, and spot currency trading have large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets.

Don't trade with money you can't afford to lose. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed in any material on this website.

The past performance of any trading system or methodology is not necessarily indicative of future results. Forex, Futures, and Options trading has large potential rewards, but also large potential risks. The high degree of leverage can work against you as well as for you. You must be aware of the risks of investing in forex, futures, and options and be willing to accept them in order to trade in these markets. Forex trading involves substantial risk of loss and is not suitable for all investors.

Please do not trade with borrowed money or money you cannot afford to lose. Any opinions, news, research, analysis, prices, or other information contained on this website is provided as general market commentary and does not constitute investment advice. We will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from the use of or reliance on such information.

Please remember that the past performance of any trading system or methodology is not necessarily indicative of future results. An Eye-Opening Article on Forex Trading Money Management This post was written to expose some truths and some myths surrounding the topic of managing your trading capital.

Let me explain… I will warn you that what you are about to read is likely to be contradictory to what you may have already learned about forex money management and risk control in other places. Traders should focus on pips. Wider stops risk more money than smaller stops Many traders erroneously believe that if they put a wider stop loss on their trade they will necessarily increase their risk.

The Power of Risk to Reward Professional traders like me and many others concentrate on risk to reward ratios , and not so much on over analyzing the markets or having unrealistically wide profit targets.

In Summary The power of the money management techniques discussed in this article lies in their ability to consistently and efficiently grow your trading account. Checkout Nial's Professional Trading Course here. Pedro July 30, at 3: Rezanades July 19, at Glorious April 23, at 2: Amos April 17, at David January 21, at Nial Fuller January 22, at 5: Timothy January 19, at 4: Joshua Adelakun October 4, at 3: Dave B September 17, at 6: Oged Olat November 1, at 7: Thank you Nial Reply.

Norman October 11, at 8: Very good article Nial, thanks for your sharing, like your site. Jimmy June 29, at 3: DRS June 27, at 9: Hi — I just read this article again and it is spot on. Andrew June 17, at By sticking to the most liquid currency pairs or instruments such as the majors, the low spreads can help traders to better manage a trade. In other words, aiming for a pip profit with a 50 pip spread is more risky than aiming for pip profit with a 1 or even 5 pip spread.

One of the biggest reasons why traders often end up ignoring their trading rules is due to emotions which tend to grow stronger and risk your equity especially after you take a trading loss. True, while there are traders who do achieve such goals, it could be that they are more experienced and are trading with a higher equity. Greed is often a strong emotion that needs to be checked time and again and not let the emotions end up ruling your trading decisions.

By having a realistic goal , be it daily, weekly or monthly, traders would be able to better equip themselves emotionally by sticking to the trading rules outlined.

Improve Your Trading Skills - Don't miss our new posts! Trading Forex, Binary Options - high level of risk. Please remember these are volatile instruments and there is a high risk of losing your initial investment on each individual transaction. Safe martingale and manual trading Part 1. Therefore money management should be considered even before live trading and when you want to open your live account. The second stage is when you want to choose the leverage of your account.

Nowadays you can have even a 1: I do not want to talk about leverage in this article because this article has to be focused on money management but briefly, leverage is the facility that your broker gives you to enable you to manage bigger amount of money using a smaller amount of money.

For example if a broker gives you a 1: But if a broker offers a 1: So why having a big leverage like 1: Because you can trade a huge amount of money and if your trade goes against you, you lose all your money very easily. Whereas if your account leverage was 1: The third place that you have to consider money management, is where you want to take a position.

This rule should be applied to the positions we take too. This is the most important stage of money management, which is very easy to apply.

You just need to consider it and not to ignore it. Let me tell you something frankly and seriously. Do yourself and your money a favor: I can not emphasize on the importance of stop loss more than this. Setting a proper stop loss for each trade, is a different story. Some traders always consider a constant number of pips for their stop loss positions but this is not correct. Stop loss value can be different from time frame to time frame, currency pair to current pair and trade setup to trade setup.

Stop loss that I choose for a position which is taken based on a trade setup on daily chart, has to be much bigger than the stop loss I have, when I trade using a 15min chart. How to set a proper stop loss and target is something that has to be discussed in a different article. I have already published an article about this subject: Lets get back to our money management discussion. So the third stage of money management is when you want to take a position.

No matter what position you take and how big your stop loss is in different positions. Easy to understand so far, right? Before I show you how you can calculate your position size, let me tell you another thing. If a position goes against you and you feel stressed out and you down on your knees and start praying and begging God to return the market and you can get out at breakeven, it means: You have traded with the money that you can not afford to lose and if you lose it, you will be in trouble.

And you have taken too much risk in your trade and you have not followed money management rules. And you have not set a stop loss and your account is so close to become margin called. If you trade like this, you should know that this is not trading. It is something else. And if by any chance, market returns and you can get out at breakeven in one trade, you will be trapped in another trade and you will lose all your money.

Not all my positions are supposed to hit the target. Now I show you how easy it is to calculate your position size. This question refers to pip value of each currency pair. One lot is , units of a currency in forex world. If you buy 0. Each currency pair has a different pip value. I will give you a calculator at the end of this article that can easily calculates your position size.

I will also give you a pip value calculator. But before that, I just want to make sure that you understand how to calculate your position size manually.

It is now very easy to answer. So you should trade 0. It can be calculated through a simple equation:. Now you can answer it right away: Now that you have learned to calculate your position size, you can use the below position size calculator, whenever you want to take a position. It saves you some time. In case you like to calculate the pip value of currency pairs , here is a pip value calculator:. This was about calculating your position size based on the stop loss you should have for each trade.

But what about target? Most traders say, your target size should be at least the same size as your stop loss, if not bigger. But choosing the target is also dependent on the trade setup you have found.

When you have found a long position, you should be able to find the next resistance level that may stop the price from going up. That level will be your target.

Accordingly, when you find a short trade setup, you should be able to find the next support level that may prevent the price from going down. Then if you see your target will be smaller than your stop loss, you should ignore that position and you should wait for another trade setup. Another strategy that helps you to make more profit and protect the profit you make, is splitting your position into two or even three parts and have a different target for each part.

For example you find a trade setup and based on risk calculation, you have to take a 2 lots position. Your position target should also be pips. You can take two one lot positions with the same stop loss, but for the first position you set a 50 pips target and for the second position you set a pips target. When the first position target is triggered, you move the stop loss of the second position to breakeven entry price. Therefore, if it goes against you after triggering the first target, your second position will be closed with zero loss and you have already made a 50 pips profit with the first position.

Some traders are against this strategy. They say if you are confident enough about your trading system and if you have picked a good signal, let your target to be triggered with the full amount of your trade. This is also true. When the first target is triggered, you just move the stop loss to breakeven for the second position and as long as the position keeps on moving to your favorite direction you hold the position and move your stop loss, candlestick by candlestick or pips by pips in this example.

This is a good method for maximizing your profit. This article was supposed to be focused on money management. But what is the relation of maximizing your profit and money management? Maximizing your profit is an important part of money management. If you succeed to maximize your profit in your trades, you will have a better risk-reward ratio. When your stop loss is the same as your target, you have a 1:


Currency trading offers far more flexibility than other markets, but long-term success requires discipline in money management. Forex: Money Management Matters Topics. Forex Money Management. Trade safe building stable gains. Money management is a way Forex traders control their money flow: literally IN or OUT of own pockets. Creating a Forex money management strategy and risk control plan doesn’t have to be a difficult task. In fact, it’s one of the easier things you can do to protect your trading speproin.tke this truth, it’s often overcomplicated to the point that most traders fail to create a proper strategy.