In yesterday's post we discussed how it is possible to wipe out a sustained period of profitable Forex trading with a single disastrous move - simply because of sloppy money management (i.e. NO money management!)
The golden rule for avoiding this fate is: Never risk more than 1% of your total equity on any trade. This means you can be wrong 20 times in a row and still have 80 percent of your equity left.
VERY FEW Forex traders have the discipline to stick to this rule consistently. This is the very good reason why Easy-Forex don't use a demo account for training purposes, as some platforms do. You can't teach a child not to touch a hot stove by using a toy stove - the child will only learn after being burned a couple of times. In the same way, most traders can only learn the lessons of risk discipline through the painful experience of losing money. With Easy-Forex you can start with a mini-account which will make sure that if you make a loss, you won't lose your house - but with their close personal guidance you will quickly find your winning trades outnumber your losing trades.
The way to control your risks is through stop-losses. There are two main ways of doing this;
- You can take frequent small stops and hope to gain your profits from your few large winning trades: or
- You can go for many small gains and take infrequent but large stops - the more risky way.
You can try both ways and see which suits you better.
There are four main types of stop and we will look at these next. Keep checking http://www.bizwrite.co.uk/Forex/forexindex.html for other things you might want to know.
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