Forex Trading Info

You have your trading system got a good idea on money management but don't know how to use that all to put your Stop Loss and how to size your Position? Well I certainly will help you with this. This article will tell you exactly what you need to know to start your trading.

You might already know that money management is the key to the success of a ones trading system. Position size and Stop Losses are a key element of this.

What do you need a Stop Loss for? You should already know the answer to this question but i will tell you what it is anyways since it is so important: Yes you have a system, the system tells you if to buy or to sell, BUT the system CAN be wrong. This is not bad at all, if you win 70% of the time and loose a tiny amount 30% of the time you will still make a load of money.

But this is the point where you have realize that limiting your loss is very important. This is what a stop loss (SL) is for.

If you put your stop loss you know exactly how much you risk on that trade. Of course it is also important to never ever move your stop loss down (if you bought a currency pair). If you loose, you loose. No matter what happens next. Just be happy that you got out with such a tiny loss and are now able to get into the next movement.

Let's assume you already know what size of your account you want to risk i call this the r% size in this example I will simply use 2%. Please exchange the 2 for whatever percentage of your account you want to risk. A 2% risk on your account i.e. on a $2000 account means a risk of $40.

With this in mind, there are two different ways to do the position sizing and to put the SL.

If you already know where you want to put the stop loss, great go ahead and put it there. So assuming you put your stop loss 50 pips from where you bought, this means that you can risk $40 divided by 50 pips on each pip = $0.8/pip

Now you have to know what one pip is worth if you trade with one full lot (100k units). If you trade at the forex a USD crosspair like USDJPY or USDCAD, then each pip on a full lots is worth $10. Now you can simply divide the 10$ by 0.8$ = 12.5 and then divide the 100k units by this number.

100k/12.5 is 8,000 units.

Great now you know how many units you can trade.

The other idea is that you know how much units you want to trade for instance a full lot (100k units), but have no idea on where to put the stop loss.

Well let's use the same example as above, $40 risk, now you already know that for a full lot the pip is worth $10 so you simply divide the risk by the pip value = $40/$10 = 4 And voala you know that you can put your stop loss 4 pips away from the place you bought.

I hope you are now comfortable with these calculations, if not just do them more often and you'll be fine. The position sizing and stop loss are after all the most important skills in forex trading.

Lots of free additional information on how to make money at the forex (systems, money management etc.) at my website www.mma-forextradingsystem.com

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