Money Management Trading Strategy No 1 In the arena of foreign exchange (FOREX) we need three simple parameters Technical analysis

knowledge, Money management with Risk management and Trading Psychology. Every parameter is crucial. Technical analysis (TA) tries to explain the price action, which appears on the chart ie. It is an external factor for the trader. The Trading Psychology (TP), which describes the inner psychology of the trader and it can be proved disastrous if we do not consider that its initials are the same as Take Profit (TP). Finally, the Money Management in combination with Risk Management try to combine the first two parameters and these are the most important parameters for the traders capital. As soon as the trader is trying to apply his/her TA knowledge, he/she tries to interpret the price action through basic trend analysis and then through the use of several indicators or/and oscillators. The Trader Psychology is the way traders watch the charts according to their current feelings and thoughts. Money Management is the application, in monetary terms, of the way the trader has seen the charts, then he/she has interpreted them and finally he/she has decided to trade his/her analysis results. There are several myths like reward to risk has to be three to one (3:1) at maximum and one to one (1:1) at minimum. This myth is completely wrong because in the market these conditions cannot be applied, because of price volatility. The trader has to face market conditions ie. Volatility and his/her Greed and Fear against his/her target. We have to bear in mind the excessive leverage given by the companies in order to help traders to open bigger positions and benefit on bigger amount of investment. The mythical propositions for Money Management ideal ratios most probably are set by people or companies, which have benefit in case the trader loses his/her money, so we (as traders) have to be careful. The reward to risk ratio has to be one to one (1:1) at maximum. In other words, the reward has to be at maximum equal to risk amount, in order to increase the possibilities of the reward to be triggered. For example, if our Take Profit is 50 pips then we add 10-15 pips more to the Stop Loss ie Stop Loss becomes 60-65 pips. The reason is simple; as soon as we have ended with our analysis and our conclusions give us a direction then we increase the possibilities of our Take Profit to be triggered. Remember that everything in Forex Market has to do with possibilities and not luck. It is very important to be consistent in profits. Except from our portfolio, our psychology becomes better off. The majority of traders face a big issue; they know where to place the stop loss but never the place of the Take Profit. This is called Greed and Fear effect. Fear indicates the amount of money we are willing to risk and lose in the worst case scenario and Greed indicates the amount of money we are willing to get in the best case scenario. We have to use them both. At the end of the day, we have to set our yearly target and then divide it by twelve (the months) and then by 20 (the average trading sessions). For example, if I have an amount of $10000 and I want a reward of 50% at the end of the year, how should I trade and what should be my target? (Remember that you are trading Forex, because you believe that you can get more performance than the banks give. There are no banks, which give 50% on an annual basis). So, if my target is 50% of my $10000, then my target is to get $5000. If I divide it by twelve (12), then monthly I have to get (5000/12=) $417. On a daily basis I have to get (417 / 20 =) $21. If I use a leverage of 1:5 and my position size is 50000 or half lot then as soon as the pip value is $5 then I need (21 / 5 =) 4.2 pips plus the spread to get my target. Is it simpler now? I think yes. The leverage of the account has to

be the biggest possible in order for the margin required to be the minimum required. The leverage used to open a position has to be at maximum 1:10 and not bigger. Finally, the Money Management is one of the three most useful and crucial tools the trader has to use in order to get the result he/she wants but we have to be prudent and not greed, bold and not fearful. Use it and you will never regret it. WE CARE ABOUT THE RESULT OF THE PORTFOLIO AND NOT THE RESULT OF THE ANALYSIS. Thank you! Panayiotis Nikolaou