In comparison to the amount of time, money and energy spent by some traders on Forex robots, error-proof technical strategies, and quasi-magical foreign exchange trading courses where we are promised to be made super-traders, it is a pity that money management receives insufficient attention. Although almost every trader worthy of the title is aware that success in Forex is largely dependent on careful management of losses, as well as profits, this aspect of trading is somewhat neglected in preference to indicators, statistics, analysis and strategy. Yet the first issue faced by a beginning trader is losing money while trading, and strategy or analysis doesn’t say much about how to cope with it. As such, careful study and practice of money management methods must be paramount in the mind of the trader who is committed to achieving success in trading Forex.
What is analysis? It is the identification of high probability scenarios for profits. Probability does not involve any certainty, and by definition, any analytical scenario, however solid it may be, will lead to losses sooner or later. In the case of the beginner, whose skills are underdeveloped in best cases, and undeveloped in the worst, losses will come a lot sooner than profits. It is clear, then, that any trader’s education must begin with a good understanding of the importance and necessity of money management skills.
Hi Samuel, I am completely agree with you for the following statement “money management methods must be paramount in the mind of the trader who is committed to achieving success in trading Forex.”
Money management is very important to become a profitable trader.
Hi Haley, thanks for your comment. I really appreciate it and i just hope this can be of any help to you. It is through my learning in forex that i have been able to understand a good money management system. Truly this is of great help and i would suggest everyone to take part of it as this can be a vital factor in forex. Knowing how to manage money can be more than helpful in the forex market. I will encourage everyone to learn it.
I agree with that. Traders, newbies or experienced, tend to believe that finding good trading strategy or putting 200 moving averages in their charts is the key for success. In fact, technical analysis or any other strategy is just, from my point of view, less than 30% of the way to success. The rest is wise money management- cutting loses while they are small, taking profits on time and trading with trade-ideas that has risk-reward of at least 1:1.5.You might not have the perfect strategy, but with efficient money management you can become a winner.
Yes Maxgold, money management is indeed very crucial in Forex. However, it is also good that we learn about Technical and Fundamental Analysis also. These are tools that traders need to deal with Forex efficiently. But the major thing is to manage our money. Many thanks for sharing with us as i can see that this will help traders and newbies to develop a sense for Money Management. I just hope that we can together be more prudent in forex as losing big in Forex is quite hard. So lets walk together to a better way of trading guys. :))