is 4x trading easy? Or is it hard? It really is neither. 4x trading is just different. It is nothing like trading stocks, bonds, shares, options or warrants. It is 4x trading. It is the home to emotional investing, 4x gambling losers. So, to protect yourself you need to understand the rules of Forex Money Management, and the first rule is:
Forex Money Management means not losing money. Forget for now all issues of making huge profits. The first rule is all about not losing money.
It should make sense that with the largest market place in the World - where in one week more money changes hands than the entire USA economy does in a whole year - that there is no such thing as a 4x robot, any super computer or an Albert Einstein of 4x trading. That's OK, this simply means we don't get to ride every blip and pip of movement with profits. We will miss opportunities and that's just fine. I am allowed to sleep, I am allowed to be cautious. But I am NOT allowed to lose money!
2% of your 4x account is more than you should be risking on a trade if you have proper and effective forex money management.
But let's get creative with our highly leveraged 4x trading and our forex money management rule. I have a $10,000 trading account. That means I am only allowed to risk $200 of my account on any trade. If I am trading full lots, that means I must set my stop losses at 20 pips. But on extra wildly fluctuating days, I like to trade 5 lots. That means I must set my stops at 4 pips to follow the forex money management rules. How to give the trade room to breath?
How can I trade 5 lots in a highly volatile trading market and only be able to let the trade breath by 4 pips? Quite easily actually. Follow the 1 hour chart for EURUSD for 19th August, 2009. Go on, open up your trading platform now to see the history for that day or I am wasting my time writing this article. You will see that in 3 hours the USD crashed on bad news with the Euro appreciating from 1.4111 to 1.4265 - all in 3 hours. That's a hefty move.
Not even a super computer could predict to buy at 1.4111. News traders would have got on board based on the USA problems sure. But actually, I was lucky enough to be already long a few hours earlier. But with only a 4 pips stop loss? Luck or stupid?
Fact is I was going out shopping with the girlfriend and I had trading signal software telling me I should be long. So I had placed 2 pending orders. The first was a 5 lots pending buy limit order at 1.4080 (in case of a dip in my favor), and to cover this potential and to obey forex money management rules, I also placed a 5 lots pending sell short order - one cancels the other out should they get executed.
As it turned out, the market did dip down to 1.4069 and I was in for both buy and sell orders cancelling themselves out. When I got home the sell stop order was in profit, and my buy was at a loss. But the net effect to my account was only the 0.9 pips spread. I waited for an hour, the Euro rebounded, I closed my sell trade at break even and let the buy trade continue. Joy oh joy it then went seriously into the money a few hours later on the USA's bad news.
After closing out the short position at break even and with the long position in profits, then the next few hours was all about protecting that profit. I was never at risk of losing my 2%. When it profits were high enough, I set the trade to a 20 pips trailing stop and let the trade play out. $8,250 or 82.5% profit on the day. Never was the forex money management rule ever broken. By using hedging, my account was protected.
Hedging people. Learn it, get serious about the first rule of Forex Money Management. DON'T LOSE MONEY, and NEVER risk more than 2%. - 23309
Forex Money Management means not losing money. Forget for now all issues of making huge profits. The first rule is all about not losing money.
It should make sense that with the largest market place in the World - where in one week more money changes hands than the entire USA economy does in a whole year - that there is no such thing as a 4x robot, any super computer or an Albert Einstein of 4x trading. That's OK, this simply means we don't get to ride every blip and pip of movement with profits. We will miss opportunities and that's just fine. I am allowed to sleep, I am allowed to be cautious. But I am NOT allowed to lose money!
2% of your 4x account is more than you should be risking on a trade if you have proper and effective forex money management.
But let's get creative with our highly leveraged 4x trading and our forex money management rule. I have a $10,000 trading account. That means I am only allowed to risk $200 of my account on any trade. If I am trading full lots, that means I must set my stop losses at 20 pips. But on extra wildly fluctuating days, I like to trade 5 lots. That means I must set my stops at 4 pips to follow the forex money management rules. How to give the trade room to breath?
How can I trade 5 lots in a highly volatile trading market and only be able to let the trade breath by 4 pips? Quite easily actually. Follow the 1 hour chart for EURUSD for 19th August, 2009. Go on, open up your trading platform now to see the history for that day or I am wasting my time writing this article. You will see that in 3 hours the USD crashed on bad news with the Euro appreciating from 1.4111 to 1.4265 - all in 3 hours. That's a hefty move.
Not even a super computer could predict to buy at 1.4111. News traders would have got on board based on the USA problems sure. But actually, I was lucky enough to be already long a few hours earlier. But with only a 4 pips stop loss? Luck or stupid?
Fact is I was going out shopping with the girlfriend and I had trading signal software telling me I should be long. So I had placed 2 pending orders. The first was a 5 lots pending buy limit order at 1.4080 (in case of a dip in my favor), and to cover this potential and to obey forex money management rules, I also placed a 5 lots pending sell short order - one cancels the other out should they get executed.
As it turned out, the market did dip down to 1.4069 and I was in for both buy and sell orders cancelling themselves out. When I got home the sell stop order was in profit, and my buy was at a loss. But the net effect to my account was only the 0.9 pips spread. I waited for an hour, the Euro rebounded, I closed my sell trade at break even and let the buy trade continue. Joy oh joy it then went seriously into the money a few hours later on the USA's bad news.
After closing out the short position at break even and with the long position in profits, then the next few hours was all about protecting that profit. I was never at risk of losing my 2%. When it profits were high enough, I set the trade to a 20 pips trailing stop and let the trade play out. $8,250 or 82.5% profit on the day. Never was the forex money management rule ever broken. By using hedging, my account was protected.
Hedging people. Learn it, get serious about the first rule of Forex Money Management. DON'T LOSE MONEY, and NEVER risk more than 2%. - 23309
About the Author:
Phil Jarvie is a professional forex trader expert in 4x trading, 4 software and using 4x hedging for forex money management and may wish to visit his website to consider his reviews on how to make money trading currencies
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