4x Trading Made Simple: Forex Money Management 101
is 4x trading easy? Or is it hard? It really is neither. 4x trading is just different. It is nothing like trading stocks, bonds, shares, options or warrants. It is 4x trading. It is the home to emotional investing, 4x gambling losers. So, to protect yourself you need to understand the rules of Forex Money Management, and the first rule is:
Forex Money Management 101. Do not look for a holy grail of trading. Just don't lose money!
The 4x market turns over more cash in 1 week than the whole USA economy does in 1 year. But add to that concept, how much does every up and down tick in the market all add up to? How many pips movement in a day do we miss? Forget about it. There is no such thing as Albert Einstein and the theory of everything with 4x trading. No super computer can help you. 4x robot software is useful but clumsy at the micro level. Missing opportunities is a big part of forex trading. The real heart of the matter is not losing money. Profit is about making profitable trades only.
2% of your 4x account is more than you should be risking on a trade if you have proper and effective forex money management.
The first rule of Forex Money Management is to be used, not abused. Let me run you through a typical day for me in a volatile forex trading market. I have my $10,000 4x trading account. I am only allowed 4 pips for my stop losses because I am going to be trading with 5 lots. 5 lots is $50 per pip, and with only being allowed to risk $200, I must not lose more than 4 pips.
I'm sure you think I am crazy, but hear me out. Open up your forex platform software of choice - metatrader is fine. You want H1 hourly chart for EURUSD on the 19th of August, 2009. Note the huge rise of the Euro from 1.4111 to 1.4265 in 3 hours - all of which happened after bad USA economic data and a billion dollar trader from the Middle East put his weight behind the Euro at the same time.
Not even a super computer could predict to buy at 1.4111. News traders would have got on board based on the USA problems sure. But actually, I was lucky enough to be already long a few hours earlier. But with only a 4 pips stop loss? Luck or stupid?
To me, the market looked ripe for a rise in the Euro. And my trading signals were confirming this. And so that I was free to go shopping with the girlfriend, I entered 2 pending orders for 5 lots, each hedging the other. That is, 5 lots buy limit at 1.4080 was matched equally by 5 lots of pending sell short order at 1.4080. If the market dipped to pick up these orders, then whatever happened, each would balance the other trade.
While I was shopping, the market dipped to 1.4069 and I was losing $500 on the long position which was balanced out by the $500 profit on the short position. Think about it. The market could do whatever it wanted and I could not lose. The first rule of forex money management was safely in place with the risk of loss limited to the 0.9 pip spread to do the trades. it only took an hour to close out the short position at zero loss and then I was free to let the long position have as much as it wanted.
After an exciting few hours at the screen I watched that long position go crazy into profits, and so I switched it to a 20 pips trailing stop, which it did do at 1.4245. That was a tidy, ultra low risk, $8,250 profit on the day. 82.5% profit on a $10,000 trading account while I went shopping. The first rule about forex money management was never broken. I was never at risk of losing 2% of my account.
Hedging people. Learn it, get serious about the first rule of Forex Money Management. DON'T LOSE MONEY, and NEVER risk more than 2%. - 23162
Forex Money Management 101. Do not look for a holy grail of trading. Just don't lose money!
The 4x market turns over more cash in 1 week than the whole USA economy does in 1 year. But add to that concept, how much does every up and down tick in the market all add up to? How many pips movement in a day do we miss? Forget about it. There is no such thing as Albert Einstein and the theory of everything with 4x trading. No super computer can help you. 4x robot software is useful but clumsy at the micro level. Missing opportunities is a big part of forex trading. The real heart of the matter is not losing money. Profit is about making profitable trades only.
2% of your 4x account is more than you should be risking on a trade if you have proper and effective forex money management.
The first rule of Forex Money Management is to be used, not abused. Let me run you through a typical day for me in a volatile forex trading market. I have my $10,000 4x trading account. I am only allowed 4 pips for my stop losses because I am going to be trading with 5 lots. 5 lots is $50 per pip, and with only being allowed to risk $200, I must not lose more than 4 pips.
I'm sure you think I am crazy, but hear me out. Open up your forex platform software of choice - metatrader is fine. You want H1 hourly chart for EURUSD on the 19th of August, 2009. Note the huge rise of the Euro from 1.4111 to 1.4265 in 3 hours - all of which happened after bad USA economic data and a billion dollar trader from the Middle East put his weight behind the Euro at the same time.
Not even a super computer could predict to buy at 1.4111. News traders would have got on board based on the USA problems sure. But actually, I was lucky enough to be already long a few hours earlier. But with only a 4 pips stop loss? Luck or stupid?
To me, the market looked ripe for a rise in the Euro. And my trading signals were confirming this. And so that I was free to go shopping with the girlfriend, I entered 2 pending orders for 5 lots, each hedging the other. That is, 5 lots buy limit at 1.4080 was matched equally by 5 lots of pending sell short order at 1.4080. If the market dipped to pick up these orders, then whatever happened, each would balance the other trade.
While I was shopping, the market dipped to 1.4069 and I was losing $500 on the long position which was balanced out by the $500 profit on the short position. Think about it. The market could do whatever it wanted and I could not lose. The first rule of forex money management was safely in place with the risk of loss limited to the 0.9 pip spread to do the trades. it only took an hour to close out the short position at zero loss and then I was free to let the long position have as much as it wanted.
After an exciting few hours at the screen I watched that long position go crazy into profits, and so I switched it to a 20 pips trailing stop, which it did do at 1.4245. That was a tidy, ultra low risk, $8,250 profit on the day. 82.5% profit on a $10,000 trading account while I went shopping. The first rule about forex money management was never broken. I was never at risk of losing 2% of my account.
Hedging people. Learn it, get serious about the first rule of Forex Money Management. DON'T LOSE MONEY, and NEVER risk more than 2%. - 23162
About the Author:
Phil Jarvie is a professional forex trader expert in 4x trading using 4x hedging for forex money management and may wish to visit his website to consider his reviews on how to make money trading currencies
posted by X - Men @ 12:15 PM
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