MONEY MANAGEMENT

It is easy to demonstrate that MM is far more important than analysis.

A total lack of MM would mean risking everything on any one trade.

You might have the best analysis system in the world and get 99 straight trades

right but that 100th trade would wipe you out.

On the other hand you might have the worst analysis system in the world. If so,

a proper MM system will reveal this fact while at the same time minimizing the

risk to your capital. So if you get 10 straight trades wrong you still lose only 10% of your capital!

It is therefore immediately clear which is the more important. MM is what makes the analysis / system work, not the other way around.

Learning to trade in a demo account is necessary, practicing is necessary, but

when you start to play the game for real everything changes, if only because you start to hit emotional/psychological problems you never even dreamt existed. These problems can be overcome but when you enter a new arena (i.e. actually trading your new system/approach) then you must minimize your risk indeed good traders minimize risk at all times.

So you don’t trade 10 lots, you just trade one. Or you don’t trade even 1 full lot,

you trade .1 mini lot. And you keep trading just one until your actual results

confirm that you should increase position size.

At that point your area of risk (new territory) has become more quantified and

you can move ahead a more relaxed trader. It would then make sense to

increase position size in appropriate steps. If your system had some flaws

then you do not lose all your capital and you also develop some discipline along

the way. What do you stand to lose? Just a little time. If all goes according to

plan you may well be trading at the size you originally wanted to just a few

months later.

To order John Piper’s book The Way to Trade (good for traders of any market), please click here:

http://www.the-way-to-trade.com/wayto/trade-108.php

(excerpt taken from John Piper’s book The Way To Trade, by permission)

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 Day Trade Forex 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.successtrading2000.com

http://www.professionalforextradingonline.info

http://www.shortterminvestingsite.com