Are These Simple Trading Mistakes Costing You Money In The Forex Market
The 2 percent rule is a very effective instrument in the Forex trading world. Adopting this method will allow you to reduce the size of your losses during losing streaks, which is an important issue to take into mind. Although there is one little limitation to be aware of when utilizing the 2 percent method to determine how many Forex shares to purchase, there is one important point to keep in mind. The amount of shares you can purchase is regulated by your maximum loss as well as the size of your stop loss, as you are aware. Increasing your risk will also raise the dollar worth of the position you open. If you simply lower your stop size, that is, if you put a more stringent stop loss on the position you open, you can raise the monetary value of the position you take.
You might choose to implement an additional rule in order to eliminate the possibility of ending up with too large holdings that could jeopardize your Forex trading float. As a result of this rule, the dollar value of a position would be limited to no more than a certain proportion of your total Forex trading volume.
Suppose you determine that you will never open a position with a dollar value greater than 25 percent of the total amount of money you have available to trade in the Forex market. Following the calculation of the formula that determines how many shares you purchase, you will only be able to execute this rule if you conclude that the dollar worth of that position is larger than 25% of your total float. If this were to occur, you would reduce the position to ensure that it did not surpass the 25 percent threshold.
The proportion that you choose will be determined by the sort of strategy that you are trading, the size of your float, and your own risk tolerance. In general, smaller Forex trading floats may use 25 percent of their whole float, whereas larger Forex trading floats may use as little as 10 percent or even 5 percent of their total float. There are no hard and fast rules, and the percentage you choose will be determined by your unique set of facts and circumstances.
As soon as this tendency is rectified in your favor, you will have all of your money management principles in place and ready to control your risk in the foreign exchange market. You must now proceed to the next stage of the process. Test your system to see which of the factors best suits your needs, always keeping in mind that position sizing is the most important aspect of any system design to consider. It is the central tenet of financial management. As soon as you’ve put your system through its paces and refined your trading rules, you’ll be well on your way to being a successful Forex trader.