Methods of money management in trading
Money management is a very important point in Forex trading. The profit and long-term success of any market player depends on it. Without competent money management, a trader cannot count on overall success even if he has a good strategy for work.
What are the main methods of money management
And now we will look at what methods of money management are in Forex. The first is to open only one trade at a time. This is the most primitive method, and it does not guarantee anything, since the volume of the transaction is not determined.
On the one hand, opening only one position somewhat protects your capital. On the other hand, the transaction volume can be excessively high, which will negatively affect your trading account balance. That is, this method, although we are considering it, is not suitable for the job.
Another method is to calculate the risk percentage. Most often, they say that the amount in each transaction should not exceed 2-5% of the total trader's funds. This method is the most common. Its disadvantage is that you will have to recalculate the size of transactions after almost every position, which will somewhat slow down the procedure for opening a position.
There is another method - determining the number of points that you are willing to risk on each trade. At first glance, this method is simple, but here it is necessary to correctly calculate the lots, because if you exceed the acceptable amount of risk, you will incur significant losses.
Moreover, this method also requires recalculation from time to time. At least in terms of position size, because if you have less money left, it is advisable to reduce the trade size as well.
Trading styles
It is also worth paying attention to the trading style. It also affects the size of profits, risks and losses. If you have an aggressive strategy, it might be worth considering lowering your trade size. Because in such a strategy, you risk more and usually a higher drawdown.
If the strategy is conservative, you can slightly increase the position size or the acceptable level of risk in order to make a large profit.
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Читать полностью…The Importance of Trading Psychology
Several skills are required for trading successfully in the financial markets. Fundamentals &Technical determines the direction of a stock's trend.
🧐But neither of these technical skills is as important as the trader's mindset.
⚡️Containing emotion, thinking quickly, and exercising discipline are components of what we might call trading psychology.
There are two main emotions to understand and keep under control: Fear and Greed.
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Traders often have to think fast and make quick decisions, darting in and out of stocks on short notice. To accomplish this, they need a certain presence of mind. They also need the discipline to stick with their own trading plans and know when to book profits and losses. Emotions simply can't get in the way.
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Any trader knows that the market does not move in a straight line, but makes oscillatory movements. As a result, the trend looks like a sequence of waves. And, if it were possible to understand their order, then it would become much easier to earn on binary options or other types of exchanges.
Fortunately, there is one interesting theory that was put forward by the famous financier Ralph Elliott back in the 30s of the last century. According to his observations, the price has a pronounced wave structure consisting of 8 fluctuations: 5 up and 3 down. By the way, this also corresponds to the basic law of the market, according to which the price rises longer than it falls.
According to the author of the theory, the formation of waves is directly related to the psychology of trading. So, if we consider a long position, then the following comes out:
The first wave is formed after the flat. It is at this moment that large players, based on the collected data or insider information, open long positions. Naturally, the market begins to move up and this happens until some of them fix a profit.
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The correct and only correct use (or adaptation) of martingale methods.
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