If you want to win at forex trading, you need to like the good football teams – play strong defence first. If you do, the offence will take care of itself and you could soon be making some huge gains and protecting what you have at all times.

Many traders do forex money management as an after thought and think it takes care of itself – but with the leverage available, this is a sure fire way to wipe out your equity.

Forex money management is all about taking calculated risk at the right time and as the old gambling saying goes:

“To win you need to bet but you can’t bet if you’re not at the table”

As soon as you open a forex trading position, you are at risk.

How you manage this risk, will determine how successful you are and how much money you make.

Here are some tips on money management which will help you maximize gains and limit risk.

1. Trade only when the odds are in your favour

Many traders think the more they trade, the more they will make – but this is simply not true. High odds set ups don’t come everyday and you shouldn’t ever force the market to try and give you profits.

2. Remember the 80 – 20 Rule!

This applies in many areas of life and simply says 80% of your gains, come from 20% of your efforts. Look at your trading in this way and you will often see, you are trading for marginal profits.

Adjust your forex trading strategy to trade less and make more.

3. Placing Stops

These should be placed as soon as you enter a position.

Never run a mental stop chances are if you miss it – you will wait to see the market it turn around as most times it won’t; leaving you with a big hole in your account.

Always place your stops behind support and resistance and not in “no mans land”- have the view if I get taken out so to will a lot of others.

Now lets look at the real problem most forex trader’s face – trailing stops.

Most traders try so hard to restrict risk they actually create it, by moving their stop to quickly and getting caught by volatility. They get stopped out with a marginal profit, then see the trade go back in the direction they thought piling up big gains and there not in!

Forex trading is risky – don’t let anyone tell you otherwise.

You need to risk money to make it, this isn’t being rash this is just a fact of life.

Volatility is the enemy and to execute your trading signals for maximum profit, you need to take it into account.

If you want to learn currency trading the correct way, understand the concept of standard deviation of price.

Don’t know what it is?

Then make it an essential part of your forex education!

When trailing stops always leave the market room to breathe.

For example, if you are following a big forex trend, you can leave your stop behind a key moving average (the 40 day is good) and while you will miss the last bit of profit, that’s ok – if you got just 50% of every major trend, you would be very rich.

We quoted an old gambling saying earlier that applies to forex trading and here is another.

” There’s a time to hold them, a time to fold them and time to get out of town fast”

If you have understood this article, you will understand that proper forex money management is essential and “getting out of town fast” will save and preserve your equity.