There’s a truism about Forex trading that if you pit two beginners on both sides of a trade, both will likely lose money, and if you pit two experienced traders in the same scenario, both will likely come out ahead. This axiom is a reflection of how important money management is to successful Forex trading and how many novices simply don’t provide it the attention it deserves.
Loss Taking Is Crucial to Long-Term Success
Arguably, the most difficult aspect of Forex money management for beginners is the concept of losses being essential to success. Many novices approach Forex trading with the goal of never losing, which is a wholly unreasonable approach. Losses will happen. The unsuccessful Forex trader evaluates loss based on equity loss, and the successful trader evaluates loss based on the return necessary to achieve the original equity value.
Money Management Styles
Your approach to money management should complement your personality. You can either make many small stops in order to take your profits from a few large successes, or you can profit from many bite-sized gains. Either approach is valid. However, the first approach requires dealing with failure frequently, and the second approach requires that you stick with it without the carrot of some big wins.