Surviving in the retail trading industry is one of the most difficult tasks in the world. Even if you start your trading career with millions of dollar, it won’t take much time to lose all your fund. The first three month is very crucial for the new investors. If you don’t trade with proper money management you will blow your trading account without even understanding the nature of this market. In the eyes of trained professional risk management factors is often known as the most important element in the Forex market. But this doesn’t mean you will become a profitable trader just by following the simple 2% rule of risk management. You have to understand the advanced art of risk management to save your investment. In this article, you will give you three amazing tips on money management which will change your trading career.
A different approach to the basic 2% rule of money management
We all know the famous 2% rule of money management. No matter what happens, we should never risk more than2% of our account capital in any single trade. But even after following this rule blindly many retail traders have blown their account. So what’s went wrong with this rule? The rule is perfect but the new traders don’t know the proper way to use it. Instead of risking 2% per trade you need to consider this rule from a different perspective. For instance, no matter what happens, the number of active trades should never exceed 2% of your account balance. Sounds a little bit confusing? Let’s make it clearer. If you open five trades at a time, the accumulated risk for that 5 trades should never exceed 2% of your account balance. Just by tweaking the famous 2% rule of risk management you can dramatically improve your trading career.
Use the price action signal
The retail traders don’t know how to place the perfect stops for their trade. Being a new trader it’s very obvious you will place a trade by using indicators and EAs. But the expert traders always uses the key support and resistance level to trade this market. Instead of using the indicators reading, you need to use the price action confirmation signal to protect your investment. Stop trading the market based on wild assumptions. Learning the basic art of price action will be a little bit hard for you but if you take organized steps it won’t take much time to master this strategy. Being a price action trader you can easily use tight stop loss and execute quality trades. When you do the price action analysis, you need to make sure that you are trading in the higher time frame. Stop trading lower time frame as it will give you false trading signals.
Know your risk tolerance level
Every trader has a different personality. If you trade the market with some fixed sets of rules, it’s very obvious you will lose money. You need to find your risk tolerance level to determine your lot size. Learn to embrace the losing trades since it’s a part of your trading career. If you always try to win the trades, you are going to lose a huge amount of investment in the Forex market. You need to reprogram your mind to embrace the losing trades. There are some traders who often start their trading career with other people money. But do you really think this is the perfect way to start your trading career? If you do so, you will be under extreme mental pressure and it won’t take much time to break your rules. You will be trading with high risk to earn more money. At times you might get some big winners but considering the long-term scenario, you will be ruining your trading career. Never trade with the money that you can’t afford to lose and make sure you have a financial backup for six months before you consider trading as your full-time profession.