Why do you need an effective Money Management plan?
Money management holds a great significance in the success of a forex trader. No trading strategy can ensure profit without an effective money management plan. A money management plan consists of all those techniques that a trader use and apply to minimize losses and sharpen its trading skills. You cannot earn profit if you do not apply money management techniques. If you do not pay heed to money management techniques then there is no difference in gambling and forex trading. There are certain tips that can serve you well in the path of earning profit and surviving in the long-run in forex trading.
First of all, you need to learn that negligence towards money management techniques will result in complete wipeout of your trading account. The most effective money management strategy is to risk minimum on a single trade. Even if you are confident about a trading setup, you should not risk more than 3% in a single trade. This technique will help you to survive in your rainy days.
Secondly Greed is one of the disaster factors for forex traders. You should try to keep this disastrous emotion in control while trading. But definitely it is easier said than done. It requires extreme level of self- control and years of experience to keep it under control. Obviously a trading position with a stop loss at 10 pips will no doubt result in loss.
Thirdly Trailing stop must be a crucial part of your money management plan. The use of trailing stop helps you to lock and ensure your profit. You can set the trailing stop according to condition and trend of the market for example if there is a strong trend in the market then you should set it at the average height. Lastly another important aspect of the money management plan that you must pay attention is Leverage. Leverage is the feature of forex trading that attracts the traders but they often fail to understand that leverage enhances the chances of both the profit and loss. Therefore you must be careful and cautious while trading and using leverage.