MONEY MANAGEMENT TECHNIQUES
When trading on Forex , you need to know how to properly place your capital; how to calculate the amount of funds needed to make a transaction order to obtain adequate profit and how not to lose all your deposit amount when you experience a loss.
To be able to achieve goals like this, there is a method of capital management (money management), namely:
Capital management deficiency. Some traders, when opening a transaction position, do not take into account the amount of funds currently in use, even estimating potential profits or losses. This is one strategy, but if the capital is not too large after several transactions, it will be completely lost.
Multiple contracts. When opening multiple transaction positions in the Forex market with different instruments, a trader can get a large profit, for example EURUSD and EURGBP, especially if the price moves in the right direction. However, you also have to consider losses.
Fixed amount. Depending on the amount of funds available, a trader decides for himself how much the amount of risk is placed when opening one or more transaction positions. Then it will not exceed the amount it sets when making a transaction.
Fixed capital interest rate. The method is the same as the previous method but with a small difference, the trader determines the capital interest rate, but not the amount.
The relationship between profit and loss. You need to record the statistics of your own transactions (amount of losses, profits and linkages between them). When you can see the relationship between them, then you can apply what you already know in trading.
The meeting point of the average capital movement curve. Everyone knows what a moving average is, which can act as a sign of when you can enter or exit the market. Based on this method, moving average (long or short) is used to estimate transaction results. If a short curve is above long-curve, you can make transactions and can be profitable. But if you are under a long-curve, you should wait a moment.
Using one of the capital management methods to trade on Forex can help you properly use money on the Forex market and can also help you to make a profit. Capital management methods are used to open transaction positions.