Make Money Forex Trading Using Money Management As the Weapon of the Day

There's an old story of a very successful Pork Bellies trader who was asked the key to his financial success. He held out a stone attached to a string and said, "this is my secret..."

And he went on to explain how each morning he would hold the stone over the pork bellies quotes from the day before. If the stone swayed vertically over the charts he would go long in Pork Bellies for the day. If the stone swayed sideways he would go short.

In astonishment a seasoned trader asked, "is that it?" The Pork Bellies trader replied "yep." And after a moment of silence he chimed in, "oh yea and I don't hold any losing trades over night..."

This is rather quirky, yet true, story that underlines the power of money management.

I will make the rather startling claim that it is entirely possible to make huge sums of money trading a Forex system that has a less than 40% win ratio. That is if you know how to handle the money management side of the business with finesse.

By letting your profits run and covering with effective stop losses you can ensure that the gainers, will make up the losers. And then by keeping a close eye on your account balance you can determine when to risk larger sums and when to scale down your positions.

The Essentials Of Money Management

Basically the method of money management in Forex trading involves scaling your trade positions (the monetary amount of open trades) accordingly with the size of your account. As your account swells in profits - trade more volume per trade. As you account suffers draw-downs scale back the number of positions you have open.

This will allow you to take full advantage of your larger balances while becoming conservative when the inevitable draw-downs occur.

The Easy Way To Use This Tool

Frankly, money management can be a bear. Not only are you required to make market decisions, but then you need to weigh those decisions against your account size and other open trades. This can be a full-time job.

This is why many independent traders are turning to Expert Advisor software applications that manage and/or advise on money management, as well as risk to rewards. Plus they give trading indicators for when to enter and exit the markets.