Every successful trader who is earning a quite bit of money from trading if you ask them about the reason behind their success then you will find that they followed a strict way to manage their money and risk. If you don’t follow any money management or risk management rule then the best trading strategy in the world will not be much help for your trading career. If you won’t be successful then you must need to maintain a strategy that contains a clear risk-reward ratio and follow it no matter what the situation is. In this article, we are going to talk about a few money management tips which will help you with your trading career.
Fix your risk per trade
CFD trading is a very risky profession because it is related to real money so if you did any kind of mistake intentionally or unintentionally, you may end up losing your trading balance. Once you lose your trading balance, it is really hard to gather reinvest. So, before start trading, you just need to fix the risk that you can take for each trade according to your trading balance and you should never take risks more than that. We suggest you take risks not more than 2% of your trading balance to have a smooth trading career and if you follow this rule than you may lose some trade but still be in profit.
With time you may increase your risk as you are getting along with the market but if you stick to 2% of risk than it is not will be a problem. So fix a risk-reward ratio before you start CFDtrading and never use any negative risk-reward ratio no matter how confident you are with a signal, skip that signal if it does not give you a proper risk-reward ratio. You might find this page important as Saxo has many premium quality educational contents.
Using stop loss is must
CFD market is a very volatile. Sometimes it moves so fast that you can’t imagine. So whenever you open a position set stop loss level which will help you not to lose your whole trading balance. Sometimes stop loss level cannot operate at a set price because of certain market conditions and it may operate at slightly below or upward price but it is better than losing all the capital for trading. But never put your stop loss to narrow because your position needs space to breathe so that it can give you a certain result.
Fix how much profit you will take
Just like fixing stop loss, a trader should also fix how much profit he is going to take from a trade. So when you open a position then calculate the risk-reward ration and set the stop loss and take profit level according to that. Your trade can be in profit and you can think it will go far from your take profit level so might want to change your take profit level but you should avoid doing that because you never know when the market will go against you. You take profit and stop loss level has to be in line with your risk-reward ratio.
Try to keep a trading journal
Maintain a trading journal can help you with self-judgment to find your weakness. Analyze it regularly as like as you analyze signals before opening a position. Give a follow up to yourself if you have used the stop loss and take profit level too far if the risk-reward ratio was inappropriate, if you open or close a trade too early this will lead you to missing a certain amount of profit.
So money management is a must when you are trading in the Forex market because you are using money to make money. No matter how the good trader is you and how much confidence you have in your strategy and trading style, you will end up with zero profit if you don’t follow any money management rules. We hope the article will help you with this.