Day 10 – Bonus Lesson!

Managing Your Money – 101

When you start Forex trading, it is important to learn the basics of money management. If you just decide how much money you can afford to lose on a single trade, and start trading without any system, then you are not trading you are gambling. Forex trading is not about gambling and trying to win the jackpot, it is about making consistent profitable trades.

Unless you manage your money properly while trading the Forex, then you just as well play the casinos in Las Vegas instead…

Some gamblers do make money in casinos, but many more people lose their money. The only people who consistently make a profit from gambling are the casino owners. Even when gamblers do win, the casino owners often bribe them with free hotel rooms, free food and drink etc. to carry on gambling, and in the end they lose all their money to the casino. When you trade the Forex, you need to think like the smart casino owner, not like a gambler…

In any enterprise, it is always easier to lose money than to make it, and trading the Forex is no different.

For example, suppose you lose 50 percent of your bankroll on a trade. Now you have only 50 percent left to trade your way back to where you started. And what happens if you lose the other 50 percent on your next trade?

Gamblers often talk about winning streaks and losing streaks. When they think they are on to a winning streak they keep on staking all of their winnings on the next roll of the dice or spin of the roulette wheel – and what happens? You’ve guessed it, they lose all their money, and end up broke. In Forex trading you can never rely on winning streaks, but losing streaks are a very real and ever present danger.

Suppose you have a trading system that returns a profit 70 percent of the time. You would expect 7 out of 10 trades to make a profit, and 3 out of 10 trades to make a loss. However this ratio is only true if you average out the results of hundreds or even thousands of trades. So if you make 100 trades, you will probably make close to 70 profitable trades and 30 losing trades. But what if you start trading, and your first 10 trades are all losing trades?

The answer is you must only trade with a small percentage of your trading bankroll. For example, suppose you have a starting capital of $10,000. See what will happen if you make 10 consecutive losing trades (trading with 10 percent of your bank on the left, and 5 percent of your bank on the right):


If you started with $10,000 in your bank, and trade with 10 percent of your bank each time, then you would have $3,874 – $387 = $3,487 left in your bank after 10 losing trades. But you would have $6,302 – $315 = $5,987 left in your bank if you traded with just 5 percent each time. (Of course if you had traded with $1,000 each time, you would be cleaned out after 10 losing trades.)

If your system returns 50 percent profitable trades, and 50 percent losing trades, then you would expect to get 10 consecutive losing trades once in every 1024 trades. (And they might be your very first 10 trades!) If your system returns 70 percent profitable trades, and 30 percent losing trades, then you would expect to get 10 consecutive losing trades once in every 169,350 trades.

This is not very likely to happen in your first 10 trades, but it is still more likely than your chances of winning your state or national lottery. This also demonstrates the importance of developing a system that returns a high percentage of profitable trades.

By risking no more than 5 percent of your bank at any one time, you should be able to ride out even long losing streaks. The other advantage is, as the overall amount in your bank increases you can trade with larger margins, and hence make larger profits.

Note: When you trade with an odd amount, e.g. 5 percent of $6,302 = $315, always round down. So you would buy 1 mini lot at $100 (with a 1 percent margin) and leave the other $200 in your account, just in case the trade moved against you.

Next Steps:
1. Signup for a broker – the best broker we’ve found is Easy Forex. You can deposit money in a variety of different ways, including credit card payment, and you can start for as little as $100


You can Read our full review or Visit the Website by Clicking Here >>


2. Select an automated trading software – one that will sync with your broker account. From our research, the most accurate and most aggressively back-tested software is FAP Turbo.


You can Read our full review or Visit the Website by Clicking Here >>



Previous Lessons:

Day 1
Day 2
Day 3
Day 4
Day 5
Day 6
Day 7
Day 8
Day 9

Be Sociable, Share!

Share Your Thoughts Below:

You must be logged in to post a comment.