In defining your Money Management rules, do not forget to consider the Risk/Reward ratio for your given trading method or strategy. Write it down, read it often, and stick to it!

Risk/Reward is defined as a ratio of potential loss vs potential profit, and you will see quotes such as 1:1, 1:2, 1:3 etc.(or vice versa cos its easier to say!). So, for a 1:1, you would risk $100 to make $100, and for 1:2, you would risk $100 to make $200, and it goes on.

So why is Risk/Reward important? Well, there is one absolute fact, and that is, you will have losing trades! You will have heard the statement “losing trades are part of the game”, and there’s a very good reason for that! Even those considered to be the best Traders in the financial markets will have losing trades, and that’s an undeniable fact.

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Hopefully you will have read about my own experience of ignoring my own Money Management rules.  It was a very hard lesson, and hopefully you will heed my advice and ensure that you religiously stick to your own Money Management rules….  It really can be the difference between growing your capital, and losing it altogether! 

In case you have yet to define your own Money Management rules, I thought I would post some things for you to think about here on the Blog.  I hope you are able to take something from these to improve your trading. 

You need 4 key things for your money management rules, these being:- 

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Money Management – what’s that?   If this is your response to the title of this article, then either STOP trading forex until you have learnt about it or, if you are new, do not start yet!  The chances are, if you trade without any Money Management rules, you will lose your capital investment faster than the time it takes to read this article! 

Forex is a leveraged product, and if you over-leverage yourself, the truth is you could be staring at a ‘blown account’ in no time at all…. 

Therefore, it should go without saying that disciplined Money Management is an important key to not just succeeding, but surviving in Forex trading.   Sadly, the temptation of riches can wreak havoc with even the most disciplined people out there!   In fact, the determination to succeed and be wealthy may just be the one thing that causes a person to relax their own Money Management rules……………  ‘Speed up the path to the intended destination’ will be the justification in their mind! 

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