Capital management in forex trading is a very important factor determining the success of every trader.
- Capital management helps in planning, trading routes, and achieving the goals of forex trading.
- Capital management keeps us from being pushed out of the market. Always remember, as long as you don't lose, you will definitely win. Therefore, the number one goal in forex trading is to NOT LOSS MONEY. Capital management is a good tool to do that.
Capital management methods:
The way to plan the volume for each trade is what I call "go money", the "go money" method is the core of capital management. And here are some common ways to "make money":
- Depending on inspiration: This is not called capital management. This way is often seen in traders who are new to the forex market and inexperienced. They often depend on inspiration, without plans and rules. When they are happy, they trade with large volume, when they are sad, the volume is small, or when they see a "looks good" signal, they trade with a full account,... This way of "going money" is very risky, because it is complete. completely random and without control.
- "Go money" is according to the available plan: Each trading order has the same volume, whether you win or lose, the next order will not change the volume. And the trading volume only changes when the account balance increases (profit) or decreases (loss) up to a certain milestone, according to a pre-established plan. This is a pretty good way to manage capital.
Example: Account has 1000$, take profit = stop loss = 50$ = 5% of the account. So the trading volume per order is 0.1 lot. When the account increases to $2000, the volume of each order will be increased to 0.15 lots, an increase of $3000 is 0.2 lots, and if it decreases to $800, it is 0.05 lots,...
- "Go money" according to the ratio of the account: This is a very good way to manage capital, investment funds often use this method. In this way, the trading volume always guarantees the risk of each order equal to a fixed percentage of the account balance. The ideal % figure is usually 2% or 3%.
- "Going money" by accretion: This way of managing capital is quite risky, you should consider carefully before applying it. In this way, every time your trade wins, your next order will keep the same volume, but if your trade loses, your next order will increase the volume. The purpose of this strategy is to make the account grow continuously, by increasing the volume to make up for the previous losing position.
A few notes on capital management when trading forex:
- Trading psychology is the most important: The stronger the psychology, the more effective the capital management.
- Choose a capital management method - "go money" that suits your trading system, and suits your personality. Remember, in forex you don't have to be like everyone else, as long as your method works, that's enough.
- Discipline - always disciplined: Capital management is a pre-made plan before trading. So you have to be disciplined in doing it, absolutely following your own plan.
- Persevering in pursuit of the goal: If you give up halfway - you will definitely fail, if you don't give up - the chance of success is always there.
Wish you have effective capital management method, wish you success.
Best regards,
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