If you have been trading for a while then you will understand that all the hype and all those lousy trading plans that are being offered out there in the market are really just scams. This is an unfortunate truth, thankfully there are still some decent forex experts who really produce some very good stuff and bring it to market. (I have done a lot of market research and I have purchased most of the "holy grails" out there to dissect and sometimes who knows I just might stumble across a good trading strategy one day. )

This is not the aim of this article; The aim of this article is instead to inform and to show you that you can only be profitable in forex if you practice this one skill. That skill ladies and gentlemen is Money Management. No trading plan covers this and unfortunately most traders are rather vague in their understanding on just how to tie money management rules into their trading plans. This is sad and frankly if a trader does not know how to deal with money management I can safely say within 9 months that trader will be starring at a zero account. The world's best trading plan can not help! Even if you have great discipline or fantastic emotional detachment, without money management it will take you now!

There are some really good traders who browse the forums once in a while, and if you ever read their posts and ask about how to be profitable, everyone of them will tell you about money management. There will not be one who will rate having a good trading plan above money management. I write in the forums frequently as well and my aim is to try to educate as many people as possible! You got to stop focusing on the wrong stuff like technical analysis or fundamental analysis. Stop starting at your charts and start looking at your account books! This is the only way to be profitable in forex.

To give an example money management acts as a safety net for a trader during trades. Let's say for instance you are a day trader and you're on the 15 mins charts. On the average you have about 10 trades a day. If you practice good money management assuming out of the 10 trades you win 6 of them. Where does that leave you at the end of the day? Well if you have read my book you will understand about position sizing and profit and risk objectives. So assuming that each trade your risk / reward ratio is 1: 2 and your profit objective is 20 pips so at the end of the day you are at:

{(20pips x 6) – (10 pips x 4)} = 80pips profit

Now do you see the power of money management? Can you feel it? If this is not what you have been doing then seriously you are in a losing situation.

Luckily picking up money management is not difficult. There are steps and rules to quickly and easily implement money management into any trading plan. In money management there are different areas for the trader to pay specific attention to and one of these areas is position sizing.

Once again thankfully it is a simple thing to learn and to use position sizing. For example you trade the ComDols (AUD / USD), and each position you take on this pair must not exceed the 5% mark of your total account. Let me explain in greater detail, in money management you will not risk more than 5% of your total account at ANY POINT in time. So that means you got 10 trades running simultaniously, this means each of this 10 trades will be worth only 0.5% of your total account (if you divide the amount evenly) Another point to note about position size is it's relation to the pip value and Stop loss value. Get all these numbers together and work out your sums before you trade and you would have covered all the bases.

Source by Joshua Geralds