Trading With A Winning Money Management System In Mind

Most new traders spend very little time on this subject because they are so caught up in the excitement and wonder of just being able to trade. If this sounds like you don't sweat about it, but understand that trading with a good money management system is the one thing (if there is one thing) that separates the winners from the losers in the Forex trading game. A workable money management system is very often the difference between a Forex trader that is consistently winning, and a "greenhorn" who just washes out and looks toward something else for a way of making his money. 

What this means is that instead of spending your training time trying to discover the "magic bullet" indicator that will make you money, you should instead just take the time to work out what actually works over the long run, or in other words, finding a money management system that seems to make the difference to you.

A discussion of what is and what is not a good money management system for is outside the scope of this article, but suffice it to say that the greatest and longest-lasting Forex traders in the business are those that consider Forex trading a business where they are almost bored by it. They approach it like a job that they are after a time almost weary doing. This is so because their mentality is different than a newly minted trader. Their mentality or mental approach to the business can be likened to an insurance Actuary where a certain number of losses (not amount of money) is acceptable and to be expected. Trading with the right money management system puts you in the same position as that Actuary. If you think about it, a life insurance actuary is guaranteed to lose 100% of his "bets" across time as nobody lives forever. In spite of these dismal prospects, a good Actuary is able to grind out a profit for his insurance firm by adjusting the premium income amounts the firm takes in so that it creates a profit for the firm even if there are benefits to be paid out. The higher the premium, the more the profits, but if the premiums are set too high, then the firm will not be competitive in the marketplace for insurance.

If an insurance company can do it, so can you. The Actuary uses sound money management methods that take into account statistics and probabilities, and you can do a similar thing. Trading with a sound money management system is about understanding that you will not come out ahead in every trade. You will have some losers and some winners no matter what actual trading method you employ. The idea is not necessarily to have more winners than losers, but to make more when you win than when you lose. You should have an idea of how many of your trades are losers, and you should modify your actual trading plan to make sure that when you do earn a profit, the sum of your profits overwhelms the sum of your losses. The key element to focus on is to simply make sure that you develop a money management system that works for you, and that you stick to it.

Trading With Confidence

It does not matter what you trade. It can be stocks, bonds, options and futures, or of course Forex. If you do not have a sound money management system you're not going to make it very far in the business. Trading with a sound money management system is going to do many things for you. It will completely take all the emotion out of the process. When done right trading with such a system it is almost boring as the downside and risk is minimized. The immediate outcome is going to be unknown to you because of short-term random events which are completely unpredictable. Over the long run you know that you are going to come out ahead because that is the way you structured the whole game. Trading with a system such as this takes into account the long-term outcome which statistically speaking is programmed to put you ahead.

Article Source: http://EzineArticles.com/6575477