In a sense, every successful trader employs money management principles in the course of forex trading, even if only unconsciously.

The goal of this thread is to facilitate a more conscious and rigorous adoption of these principles in everyday trading.

For many forex traders, the forex market is a game of balancing fear, greed and hope. When a trader is out of balance, he likely will lose money, and if he is out of control, he will lose balance. Well-designed money management concepts can help to keep the trader in control at all times.

Trading FOREX involves three interrelated, yet somewhat separate operations:

1. Analysis of when and at what price level a market will top and bottom.
2. Market Entry and Exit – the actual buying and selling (or trading) once the decision has been made.
3. Money Management, perhaps most aptly called the art of survival.

Most forex traders spend 99% of their time on analysis and the buying and selling of currency pairs. Many of these traders ultimately join the legions of ex-forex traders because they ignored the most important aspect of speculation – money management.

You can be a good analyst and lose money trading due to poor money management. But, if you have sound, market-proven money management concepts, and the discipline to follow them, you will never lose all of your money.

There is no guarantee that you will make money using these money management rules, but you will never lose the farm.

Before entering the market, determine a stop/loss as a profit objective Many traders often enter the market with a price objective, but without a clearly defined protective stop. When the market moves against them they are often forced out of the size of their margin call. They lose control, and the results are often disastrous. What should have been a relatively small loss becomes an extremely large loss.

With a pre-determined price objective and a pre-determined stop/loss, you know where you will get out if you are wrong and where you will get out if you are right. You have control.

The stop/loss must be in the market, not in your mind.

If you have been stopped out only to have the market make the move without you, the problem was how you determined where to place your stop, not whether to use stops.

Never risk more than 10% of equity on any single trade. If possible, risk 5% or less. Never risk more than 20% in any one complex.

If you are like most traders, you always figure how much you could make. The question of how much you could lose if you are wrong is never quantified.

You are out of control.

The most important question in trading leveraged markets is – How much of your equity is at risk? On any given day, for any given trade you must know how much you will lose if the market goes against you. You can maintain control by never risking more than 10% in any one trade, and by adjusting stops so you are never risking more than a maximum of 20% of open equity at any time.