Forex money management is a set of processes that a forex trader will use to manage the money in their forex trading account.
The underlying principle of forex money management is to PRESERVE TRADING CAPITAL. That doesn’t mean never having losing trades in forex because that is impossible. Forex money management aims to minimise trading losses so that they are ‘manageable’. That means when a trade turns to a loss, it does not prevent the trader from winning other trades.
Generally speaking, there are two ways to practice successful money management. A trader can take many frequent small stops and try to harvest profits from the few large winning trades, or a trader can choose to go for many small squirrel-like gains and take infrequent but large stops in the hope the many small profits will outweigh the few large losses. The first method generates many minor instances of psychological pain, but it produces a few major moments of ecstasy. On the other hand, the second strategy offers many minor instances of joy, but at the expense of experiencing a few very nasty psychological hits. With this wide-stop approach, it is not unusual to lose a week or even a month's worth of profits in one or two trades.
here are the 5 money management portfolio forex:
1. Defining risk per trade using position sizing.
2. Set a maximum account drawdown across all trades.
3. Assign a risk: reward ratio to every trade.
4. Use a stop loss and take profit order to plan trade exit.
5. Only trade with funds you can afford to lose.
