Learnforexc: sharing some key points of forex trading.
If you do not have an effective money management plan, you can't benefit from your investment activity. For that reason, you have to learn the following tips:
This principle is based on the amount of margin requirement for the open positions. The total deposit amount shall not exceed 50% of the total capital.
The total amount of funds invested in one transaction should not exceed 10-15% of total capital. This principle helps to keep investments secure and prevent any losses.
The total amount of risk should never exceed 5% of the size of the deposit. The risk of 5% for each transaction means that in the case of price reversal direction, a trader will lose only 5% of the deposit.
Total margin commitments in any market group should be limited to 20-25% of total capital. Traders are operating considerable sums of money, and it is always possible that a trade will turn against them. The Forex trader should know the tools of profitable and careful trading, optimal money placement, and minimizing losses. Significant trading losses should not involve a bankruptcy risk but must be covered with other profitable trading operations.
Diversification is an effective way to reduce the overall investment risk. When creating an investment portfolio, the risk and profit levels of the transactions carried must be considered.
An order is placed with a broker to sell a security when it reaches a specific price. A stop-loss order is designed to limit an investor's loss on a position in a deposit. Stop-loss order largely depends on a trader's risk appetite, preferable trade size, and account leverage.
Profit/loss ratio. A profit/loss ratio refers to the average amount you can expect to win or lose per trade. Profit has to be balanced with the potential loss in case of adverse price movements. The profit/loss ratio must be at least 2:1 or 3:1, which means that for every $200 or $300 you make per trade, your potential loss should be capped at $100. For example, if your expected profit is $300 and your expected loss is $100 for a particular trade, your profit/loss ratio is 3:1 - which is $300 divided by $100.
You are trading multiple positions. While selling various parts, you need to divide your trades into trending and trading positions. Trending posts are used for the long run along with the stop losses so you can give the market room to consolidate. Generally, these are the positions that produce the most significant profits. The trading positions are for the short run. When the market reaches your first objective and is near resistance or support, always according to your class's direction, you can exit the market quickly. For such orders, you should use a tight stop loss. The goal here is to protect your profits, and the increased flexibility from the said strategy makes a big difference in your overall trading profits or losses.