‘Fixed Ratio’ Money Management

Money management is the most important and overlooked subject in trading!

In my opinion, the best money management system for Forex/Futures traders is

outlined in great detail in Ryan Jones’ book The Trading Game: Playing by the

Numbers to Make Millions. In this book, he teaches ‘Fixed Ratio’ money

management. This method, he argues, will help any trading system as long as it

is profitable over time.

This is how to put the fixed ratio money management system into practice:

‘FIXED RATIO’ MONEY MANAGEMENT

1. Start with the total number of dollars in your trading account. For example

let’s say it’s 1000 USD.

2. Now pick how many pips profit you need to achieve before you trade with

more lots. Let’s say 200 pips (10 pips/day for 20 trading days in a month

average).

3. Now start trading .1 mini lots (which is profit/loss 1 USD). You would only

increase to .2 lots after gaining 200 pips. When you gain 200 more pips profit

you would trade .3 lots etc…

4.Here is an example of how fixed ratio trading would work:

Month 1: $1000 + (200 pips x .1 lot = $200 ) Total: $1200

You start with $1000 in your trading account and after 1 month of trading

you gain 200 pips profit trading .1 lots. You now have $1200 in your

trading account. You are now at the next level. If your account balance

falls below $1200 then you will go back to trading .1 lots.

Month 2: $1200 + (200 pips x .2 lots = $400) Total: $1600

You now start month two with $1200 and gain 200 pips profit trading .2

lots. You now have $1600 in your trading account. You are now on the

next level. If your account falls below $1600 then you will go back to

trading .2 lots.

Month 3: $1600 + (200 pips x .3 lots = $600) Total: $2200

You now start month three with $1600 and gain 200 pips profit trading .3

lots. You now have $2200 in your trading account. You are now on the

next level. If your account falls below $2200 then you will go back to

trading .3 lots.

Month 4: $2200 + (200 pips x .4 lots = $800) Total: $3000

You now start month four with $2200 and gain 200 pips profit trading .4

lots. You now have $3000 in your trading account. You are now on the

next level. If your account falls below $3000 then you will go back to

trading .4 lots.

Month 5: $3000 + (200 pips x .5 lots = $1000) Total: $4000

You now start month four with $3000 and gain 200 pips profit trading .5

lots. You now have $4000 in your trading account. You are now on the

next level. If your account falls below $4000 then you will go back to

trading .5 lots.

RESULTS:

Month 6: $4000 + (200 pips x .6 lots = $1200) Total: $5200

Month 7: $5200 + (200 pips x .7 lots = $1400) Total: $6600

Month 8: $6600 + (200 pips x .8 lots = $1600) Total: $8200

Month 9: $8200 + (200 pips x .9 lots = $1800) Total: $10,000

Month 10: $10,000 + (200 pips x 1 lot = $2000) Total: $12,000

Notice that gaining an average of 10 pips a day, along with fixed ratio money

management helps your equity grow asymmetrically. Your $1000 turned into

$12,000 in 10 months!

Notice that your trading system doesn’t have to always hit a home run, you simply need to average 10 pips/day in this example.

If you wanted to be more conservative than the above example, you could simply

add more pips profit in the formula. For example you could only increase

number of lots traded after gaining 400 pips instead of 200 pips like in my

example. This would mean slower growth. Try setting up a fixed ratio money

management plan before you start your next live trade!

The above report was taken from the Euro Fractal Trading system, written by Erol Bortucene of the Day Trade Forex Team.

This unique approach to day trading the EUR/USD involves using financial Fractals and no other technical indicators, as outlined in the Euro Fractal Trading System.

Byline:

Erol Bortucene and Cynthia Macy are co-authors of The Day Trade Forex System: The Ultimate Step-By-Step Guide To Online Currency Trading’.

Visit: http://www.daytrade-forex.com

for examples of actual trades using the Euro Fractal Trading System. Learn how easy it is to learn to trade the lucrative forex market from your home pc.

For more comprehensive trading information, visit their other websites at:

http://www.daytradeforex.com

http://www.daytradeforex.com/products.htm

http://www.professionalforextrading.info

http://www.professionalforextradingonline.info

http://www.successtrading2000.com

http://www.successtrading2000.com/forex

http://www.tradecurrency.ca/education.htm

http://www.shortterminvestingsite.com