When you trade any system whether Forex or shares etc. The trading system must have a positive expectancy. A positive expectancy is the edge that a system has. To make money all systems must have this bias towards winning more than it loses.
If you trade a system that doesn't have this edge you will lose money. If you can develop a system that has this bias towards making money you have taken a giant step towards trading success.
2. Risk of Ruin
To trade effectively you must know the percentage chance of blowing your trading account. If your risk of ruin is too high you will go bust and this will stop you earning your systems expectancy. By knowing your risk of ruin you can keep you're trading under control. This will keep you trading and increase your chances of making money.
This little known indicator is used to stop you from over-trading your account.
3. Lot Sizing
Choosing the correct lot size for the size of your account is vital. To make money you have to understand the % of your trading account you are risking for each trade you take. If you want to risk 5% of your trading account per trade. You will need to know what the lot size is that equals this 5% risk.
Understanding this leads to correct money management.
4. Money Management
Is one of the key skills for making money in trading. Money management will protect you from draw downs by decreasing your lot size when the trades go against you. It also magnifies your profits by increasing your lot size when you are winning.
This is called geometric profits and creates more profits without taking on anymore risk. You are no longer stuck with linear profits. A system that makes 50% a year (linear) will make much more when a geometric system is used.
5. Margin Call
By selecting lot sizes that are too large for your account or opening to many trades at once, leads to over-trading. As your Forex broker offers you leverage you can trade lot sizes that are far too large for your trading account. This may lead to a margin call.
A margin call is when the Forex broker can close your open trades. This happens when the draw down on your open trades is the same size as the remaining money in your trading account. By closing your trades you lose the money in your account.
LEARN THE TOP 5 WAYS OF MAKING MORE MONEY IN TRADING HERE
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