Money Management Hacks for Nigerian Forex Traders.

You have heard the term over and over again, how does it really apply to you as a Nigerian Forex trader? Let's break it down together.

Boris Schlossberg once wrote that if you put two rookie forex traders in front of the screen, provide them with your best high-probability set-up, and have each one take the opposite side of the trade, more than likely, both will wind up losing money.

However, if you take two pros and have them trade in the opposite direction of each other, quite frequently both traders will wind up making money despite the seeming contradiction of the premise.

What's the difference? What is the most important factor separating the seasoned traders from the amateurs?

The answer is Money Management.

Like dieting and working out, money management is something that most traders pay lip service to as only a few practice it in real life.

Money management can seem like a burdensome, unpleasant activity because it forces traders to constantly monitor their positions and to take necessary losses.

However, as Figure 1 proves, loss-taking is crucial to long-term trading success.

Amount of Equity Lost

Amount of Return Necessary to Restore to Original Equity Value

25%

33%

50%

100%

75%

400%

90%

1,000%

Figure 1 - This table shows just how difficult it is to recover from a devastating loss.

Looking at the table, it’s noteworthy that a trader would have to earn 100% on his or her capital (a feat accomplished by less than 1% of traders worldwide) just to break even on an account with a 50% loss.

At 75% drawdown, the trader must quadruple his or her account just to bring it back to its original equity - truly a Herculean task!

Are You Also Looking Out for the Big One?

Most traders begin their trading career, whether consciously or subconsciously, visualizing "The Big One"

The one trade that will make them millions, allow them to retire young, and live carefree for the rest of their lives.

However, the cold hard truth for most retail traders is that instead of experiencing the "Big Win", they fall victim of just one "Big Loss" that can knock them out of the game forever.

Learning Tough Lessons and Avoiding the “Big Loss”

Traders can avoid this fate by controlling their risks through Stop Losses.

In Jack Schwager's famous book "Market Wizards" (1989), Larry Hite offers this practical advice: "Never risk more than 1% of your total equity on any trade.

By only risking 1%, you become indifferent to any individual trade. This is a very good approach.

You can be wrong 20 times in a row and still have 80% of your equity left if you practice money management.

The reality though, is that very few Forex traders in Nigeria have the discipline to practice this method consistently.

Most Forex traders can only absorb the lessons of risk discipline through the harsh experience of monetary loss.

This is the most important reason why you should only use your speculative capital when first entering the forex market.

In the next article, I will walk you through the various money management styles and how to implement them.

In the meantime, here are 5 Tips to Guide you in Creating a Sure Money Management Plan.

  1. Define your profit target per day/week/month.
  2. Don’t overtrade, break your profit target into the number of trades needed.
  3. Take responsibility by deciding on a volume/lot strategy and stick to it.
  4. Trading the financial market is risky, but you can define your exposure to risk by choosing a risk: reward ratio.
  5. Having a money management plan is like having a tool, using it is the only way to get the result you desire.

The next part of this article will be published next week and it will border on some Money Management Styles and How to Use Them.

Do you have a money management plan for your trading activities or not? Share your opinion on Money Management for Nigerian Forex Traders with me in the comment section below.

I would be glad to read from you.


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