In any investment trading, money management is paramount to making things profitable in the end. However, many trading rookies often make mistakes and end up losing some serious cash in foreign exchange trading.
With these best Forex money management strategies and tips, getting into serious losses becomes far more challenging!
As the name suggests, this strategy depends on making profits, generate more profits and decreasing your chances of losing money.
Now, the question is how to go about it?
The smart way to pyramid your way to profits is to keep your stop losses trailing your next trades.
For example, if you make a profitable opening trade, then on the next move, place your stop loss position somewhere where you still have the base value. Suppose trader A has made a profit from 1.3000 to 1.5000, in the next trade, he can move his stop-loss anywhere between 1.3000 and 1.4000 during an uptrend price action. That way even if trends go down the stop loss will hedge the investment and still keep base price or profit in hand.
- Fixed Percentage Money Management:
Considered the best Forex money management strategy by some and a cliché by others, this system has faced a lot of controversies. However, according to many, it has worked perfectly fine for them.
In this strategy, traders decide to risk some percent of their Forex account on every trade. For example, a trader can fix his stop loss at 1% of his total account balance, and trade will be exited as soon as the parameter is satisfied. This way, losses do not go overboard, and people do not go bankrupt.
- Martingale’s Principle:
In this principle, traders must have big accounts. Often many traders call this one of the best Forex money management strategies. The reason is simple.
The principle states that every time one has a trade loss, they should invest 2.5 times for the next trade.
In this progression, even a single win would make one recover all their losses.
The trick for rookies to follow is to start small and keep moving up with every loss. This way even one winning trade can get all of their accounts back on track.
While many experts believe this strategy to be a maverick’s, when combined with scalping and other profitable moves, this can be a deadly force in Forex trading.
Searching for the ‘best Forex money management strategy’ doesn’t make a trader better at calculating risks and decreasing losses. That only comes with a plan developed in accordance with their trading strategies.
For example, pyramiding can be a good strategy for scalpers who are looking to make a quick profit taking advantage of market volatility. In a similar fashion, all kinds of traders can develop their trade strategy specific to their money management system.
While best Forex money management strategies attract some traders, it also looks disingenuous to others with more experience. The only one that matters, in the end, is the one that puts your money at less risk.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.