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Money Management

Money Management.

To operate at the financial markets is not possible without an effective program placement. Effective management allows the trader to "survive" in the markets with margin trading. Just observing the equitable relationship between the amount of income and the amount of damages required per average trade, the trader is able to work with money, not play.

Consider the general principles and rules of money management.

The total amount of investment shall not exceed 50% of total capital.

This principle establishes the rules for the calculation of means open positions: Legal reserve for use in non-standard situations and continue normal operation shall not be less than half of the total capital. The figure of 50% is given by Murphy, however, many analysts believe that the percentage of invested funds must be even less than 15% - 30%. The total amount of funds invested in a currency pair can not exceed 10% - 15% of total equity. In this case the trader is immune from excessive investment funds in one transaction, which can lead to ruin. In this situation, there is no opportunity to hedge other liquid instruments at the right time

Norma risk for each currency pair in which the trader invests shall not exceed 5% of its total capital. Thus, if the transaction would be unprofitable, then the trader is willing to suffer the loss of not more than 5% of their total assets. % Recommend This most experienced traders and asset managers.

The total amount of collateral used in open positions in the same group of currencies "allies or enemies" shall be not more than 20% - 25% of total capital. Currency 'allies and opponents' moves more or less the same. The discovery of large positions for each pair of "allies and enemies" violates the principle of diversification, so the acquisition of such instruments should be taken with extreme caution. Never be neglected important rule of optimal investment: in one degree or another, they have to be diversified. To transact necessary so that potential losses from a single large transaction will not ruin the trader and, where possible, were compensated by the profit of others.

Determination of the degree of risk.


Determining the degree of portfolio diversification.

Diversification is one of the ways to protect the capital, but also in diversity should be the measure. Must always be competent compromise between diversification and concentration. More or less reliable and competent investment can be achieved by acquiring simultaneously more than four - six instruments. It is important to know - the more negative the value of the correlation existing between the currencies, the greater diversification nested assets.

Determining the level of Stop - orders..

Stop orders are usually placed on the period when there is no possibility to constantly monitor the market and in the event of a change of trend or a sharp pulse of the market in the opposite side of your trade. Size of Stop-loss depends on what the permissible level of funds will not critical at the wrong entrance of the transaction

It should be noted that in determining Stop - level trader needs to come from a judicious combination of technical data, reflected in the price chart and savings of its own funds. Exhibit Stop-loss from the current level of prices is necessary, depending on the volatility of the market and the selected tool.

 Experienced traders exhibit Stop - orders as close as possible from the current level of prices, in the event no proper entry into the market to reduce losses to a minimum. At the same time Stop-loss situated close to the current price can lead to undesirable closing gap with short-term fluctuations of the market. Similarly, we can say, and far remote Stop - an order, it will not strike the vibrations, but at the turn of the market is likely to get significant losses.

Determination of the ratio of potential gains and losses.

When drawing up a trading plan for each potential transaction is determined by the planned profit. Accordingly, it must be balanced with the potential risks, if the market goes in the direction of Bad for you. Most experienced traders, this ratio is 3: 1. In other cases, be sure to thoroughly examine everything and perhaps even refuse to perform transactions on the instrument or in the current time period. Thus, when planning a profit of 300 USD, the trader necessarily lays the risk of the transaction is 100 USD.

As for a certain period of operation (eg six months) a small number of deals can bring significant profits, you should bring this to the maximum profit, while maintaining profitable positions as long as possible. But the amount of negative deals with the need to minimize.

Trading several lots.

Opening the transaction more than one lot trader should divide them into so-called trend and trading positions. Trend position being sufficiently liberal stop - orders that will hold these positions even in the face of consolidation and price adjustment. Such positions provide an opportunity to get the most profit. A trading positions are intended for short-term trading (correction, kickbacks, news, etc.). Stop - orders on those hard enough and practically do not give room for error. As a result, to achieve such specific price targets are close to the following signals.

 Trading methods: aggressive and conservative.

Most traders and analysts prefer conservative trading. Traders with the worst possibilities to profit, but follows a conservative method of trading, in fact, most will achieve a regular income, than someone who has great potential, but plays aggressively.

In this case, you conservative method is the observance of all the rules and principles of money management.

Terms of open positions:

- Before opening the position, please read and perform all kinds of analysis;

- Make a trading plan and stick to it;

- In terms of trade necessarily indicate the price to enter the market, the closing price for a profit, the closing price of the loss (in the case of force majeure) and the term of the transaction;


- Keep your position, only if there is evidence of multiple trading signals;

- Gently and briefly open position against the trend (correction);

- Gently and briefly open position during flat market (range)

Terms maintain open trades and partial closing of positions:

- Keep the deal open only if the analysis confirms the conclusions obtained previously;

- Received confirmation analysis, can increase lot on this tool, open the one-way transaction in currencies allies and / or multidirectional by the enemy;

- Wait, if the price remains the same, did not reach the planned point of profit or loss on the transaction remains below the calculation;

- Partially cover the transaction when the price point of the planned profit and loss terms;

Terms closing positions on the expiry of the transaction:

- When the price of the planned point of profit;

- When the price point of the estimated losses;

- When the price reaches maximum profit;

In conclusion I would like to point out clearly respecting the principles and rules of money management, your work in the financial market will bring stable high income and a great pleasure. Good luck.