Forex Money Management is at the heart of any successful investment enterprise. If you ask any Forex expert about what makes a successful Forex Strategy and "Money Management" does not come up in his first three points I would say that person is probably not an expert and his advise may not be worth listening to.
Money Management is what separates the professional trading approach from the amateur and not coincidentally is the very reason 90% of first time traders wipe out their first trading account.
Why is Money Management so detrimental? It means you have to abandon hunches at all times, be aware what your stop losses would do to your account, you HAVE to take losses and cannot afford to extend stop losses to avoid them and lots more somewhat unpleasant but responsible trading behaviors. Money Management is your constant reality check and most people would rather day dream while day trading.
Why is money management so important for long term trading success?
Amount of Equity Amount of Return Necessary to Restore
Lost
25% 33%
50% 100%
75% 400%
90% 1,000%
So, that means that a trader would have to have a 100% return on his money just to recoup a 50% wipe out of his account.
Very few active traders are able to pull this off - I am sure that these traders use wise money management in the first place!
Stop hoping for the big one - the one trade that will make you rich! It doesn't exist - and while trying you will expose your capital to enormous losses that will be ever harder to overcome.
Start thinking in terms of steady growth with predetermined risk. Put your account on autopilot with good days that are realistic and bad days that are not catastrophic.
They only way to accomplish this is Forex automated trading with automatic money management.
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