Part Two
Intelligent Forex currency traders learn quickly that the Forex markets are mercurial and unforgiving. They know that in order for them to last, they need to make the most of a good opportunity when it presents itself, and they need to know how important it is to trade just a little bit smaller than they are fully able to, or in other words, what their system calls for. Trading smaller is how the very smart traders manage leverage. They know that when just starting out big losses take forever to make up, and on the face of it, this makes sense if only because you have less trading capital to work with and that forces you to trade smaller. What this means is that when you are just starting out you want to trade very small, risking a very tiny amount of your original trading capital. If your first trades go against you, you have not lost very much at all, and you can employ pretty much the same leverage the next time as you did the first. If you trade big when you are just coming out of the blocks and you take a loss, odds are that you are going to be trading much smaller next time because the rules of the game limit your use of leverage to no more than your account equity would permit according to your broker’s margin requirements. It is always better to limit yourself according to a well thought-out plan than to have the market limit your trading size.
Forex traders are forever craving the “secrets” held by other traders who are consistently profitable. What they do not realize is that for the most part these so-called secrets are just very simple risk management principles known to all, but enforced by few. It is the discipline to make the effort to learn what good risk management is, and the will to follow through with it that constitutes the real secret.
If you want to give yourself the very best chance to succeed as a trader of foreign exchange instruments, then do this: First go and do whatever you have to do to obtain a proven Forex currency trading system. Then, before you risk one penny of money trading in a live account, practice using that system in a demo account for at least a couple of hundred trades and keep track of how each trade works out. When you have finally discovered the trading methodology that works best for you, then migrate to a live funded account and begin to employ the same methodology that works, but using much lower leverage (smaller lots). If you start losing then reduce the leverage even more, and keep it at these lower level until you work out and correct the problems. The more you lose, the lower you should set your risk parameters until you have corrected the problem. Only after you have brought back your account to above break even should you start to employ greater leverage, and then it should only be done on a very gradual scale, so that as you begin to make money you use more leverage, and as you lose it, you employ less.
It is important to understand that the very best currency traders are not those that make the most money, but those who have the smoothest equity curve, and that is a real skill that you want to develop as quickly as possible if you want to be a real pro at this game. If you use this method of risk management you are definitely going to have a smoother equity curve, and you are going to outlast the other rookie traders who have no risk management plan. So, always remember that making it to the promised land of trading is all about being able to try, try again, and the method that we have just given to you will give you the most “trys”.
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