Money Management.Trade Responsibly.

01.Limit the risk: 

When you open a trade, place a stop loss order to get you out of your trade and prevent a situation where you lose too much. This states the obvious for the vast majority of traders reading this but i still know some traders who don't use a stop loss order .This precarious deed is done also by people who works at forex broker firms and trade with their account . Sad but true .

02.How much money are you risking :

Many traders calculate the risk/reward ratio . Some look for 2:1 or 3:1 That's great .But how many dollars are you actually risking ? This data is available with most brokers . Is this some too high ? In that case , there are two mathematical option to reduce the amount of money you risk.

03.Tighten your stop loss:

In this way less money is at risk .Sounds good ?Not exactly .Perhaps your new stop loss is too tight and will yield an immediate loss to the position .Lowering the amount of money you risk doesn't mean raising the chances of a loss!The stop loss  point should be based on your analysis : technical ,fundamental or combination .It shouldn't be based on the amount of money risk. 

04.Lowering the position size:

With lower position size , You will still get to place the stop loss point in the right place for you.But the money that is risked will be lower.Yes,also the rewards side will be lower.And yes, it is tempting  to trade large position.But remember this is leveraged money, not real money that you have .By lowering the position you still get to trade your position in full, and just risk less cash.

05.How much of your account are you risking ?:

Ok, You already see the amount of dollars that you are risking .But saying it bluntly . What is your burn rate? Let's say you have an account of $1000 and you risk 20%. Now your first trade gone bad, and you lose 200$.You stick to your method but it doesn't work out again and you lose another $200. In 5 trades you are out ,Liquidated, margin-called . If you are new in forex trading You are likely to more mistakes and lose more in your initial trades. Risking a big portion  of your account means that you can burn out quickly before you had enough time to learn, improve and win enough trades.

A RULE OF THUMB: Don't risk more than 2% of your account!!!