When you begin trading Forex and Fixed Time Trades in Olymp Trade, your first point of focus is how many trades you win against how many you lose. As you grow older in the business, you begin to realize that such may not even matter, if your account is not growing. One thing leads to another and you begin to realize that even in an endeavor to grow your Olymp Trade account, you need to conserve the little or much you have in your account from depletion.
I know you agree with me.
And because you do, then you must also agree that this is where Money and Risk management comes to your rescue.
- 1 But what is money and risk management in Forex?
- 2 1. Trading Fixed Trade Size.
- 3 2. Trading Fixed Account Size Percentage.
- 4 3. Trading The Parley Method.
- 5 4. The Martingale Method.
- 6 5. The Anti-Martingale Method.
- 7 6. Use Reasonable Risk to Reward Ratio (Manage your Money While Trading).
- 8 7. Use of Stop Loss and Take Profit Orders (Manage your Money While Trading).
- 9 8. Position Sizing (Manage your Money While Trading).
- 10 9. Avoiding Huge Leverages (Manage your Money While Trading).
- 11 10. Intuitive Money Management.
But what is money and risk management in Forex?
Money and Risk management is a set of rules aimed at conserving your capital from depletion, even as you seek to grow your account in trading.
In what ways then, can you manage your capital and guard it against depletion as you take risks which threaten to tear down your account?
This is what we are about to find out in today’s post.
We’ll talk about the 10 Best Ways to Manage your Money while Trading in Olymp Trade while also pointing you to the best strategies to grow your account.
10 Best Ways to Manage your Olymp Trade Account.
- Fixed Trade Size.
- Fixed Account Size Percentage.
- The Parley Method.
- The Martingale Method.
- The Anti-Martingale Method.
- Reasonable Risk to Reward Ratio.
- Use of Stop Loss and Take Profit Orders.
- Position Sizing.
- Avoiding Huge Leverages.
- Intuitive Money Management.
1. Trading Fixed Trade Size.
Here, if you decide that your trade size will be $50, it will be so all through. You will not add or deduct anything under any circumstance whatsoever. Whether you place a trade and win or lose, the next trade will still be placed using $50.
Will this money management method grow your account?
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Yes, it will, if you win most of your trades.
Let’s say you place a total of 10 trades with a return of 80% in each trade and win only 6 out of the 10. You will have earned $40 six times making $240 and lost $50 four times which makes $200 and such is a net profit.
Win more trades repeatedly than those that you lose and your account will keep growing.
This method will preserve your account from depletion by keeping you from doubling your stake in a bid to earn more and recover the lost money immediately. Remember, you can also lose that doubled down trade too.
2. Trading Fixed Account Size Percentage.
This method entails determining the percentage of your available balance at each instance which you can risk.
Let us say that you want to be risking 5% of your account size in every trade. So whether you win or lose any trade, the next trade will still be 5% of the remaining amount in your account.
Your account size is $1,000 at the moment and you can only risk 5% of your account size in every trade. 5% of $1,000 is $50 and so you place a trade with 80% returns and win, bringing your account to $1,040. The next trade will be placed with 5% of $1,040 which is $52 and say you lost, bring your account to $988. The next trade will be placed with 5% of $988 which is $49.4, and so on.
This method not only has the potential to grow your account but also ensures that you only expose a fixed small percentage of your capital. That way you still have enough capital to continue trading even if you lose some trades.
3. Trading The Parley Method.
The Parley Method involves investing a certain amount in the first trade and then adding the earned profits to the initial trade size before entering the next trade.
In brief, in addition to the initial trade size, you add the profits of the previous trade to get the trade size of the next trade.
You realize that this method has a great potential of growing your account faster than the fixed trade size if you are involved in a row of winning trades.
Unfortunately, the markets will at times disappoint you with some losses.
When you lose, revert to the very initial trade size and begin another series.
The more you grow your account using this method, the more it will move away from possible depletion. Isn’t that the whole goal of money management? It sure is!
4. The Martingale Method.
This method involves doubling your trade size when you lose a trade. After winning the doubled down trade, you revert back to the initial trade size and begin another series. The method aims at recovering money lost in previously lost trades and earns you even far much more profits.
Let’s say for example you begin trading with $10 on an asset with 80% returns. You lose the first trade and double that to $20. Next, you are unlucky and so you still lose the second trade and double it to $40 and finally win this one.
You get profits worth $32 hence recovering the $30 lost in the first two trades and an additional $2. Return to $10 and begin another series doubling if you lose.
Remember you need to have enough capital on your trading account to be able to double and still remain stable in case you lose doubled down trades.
This method will recover your losses as grow your account, moving your account a step further from possible depletion.
5. The Anti-Martingale Method.
This Method is the complete opposite of the Martingale method.
It involves halving the trade size each time you lose. After winning the halved trade, you go back to the initial higher trade size and begin another series. The method aims at taking advantage of winning trades and favorable market conditions to build your account as well as reducing your exposure after a losing trade.
You realize that this method helps to reduce the exposure of your account once it senses danger by losing a trade. It also helps to grow your account fast once it senses a market strength that drives your account further away from quick depletion.
6. Use Reasonable Risk to Reward Ratio (Manage your Money While Trading).
If you are trading Forex on Olymp Trade, you are well aware of Stop Loss and Take Profit Orders. The level at which you place them with respect to your entry point is crucial. These levels are determined by considering a reasonable Risk to Reward Ratio.
For example, if your entry point is 1.1620, you cannot place your Stop Loss more pips away from the entry than your Take profit. You will actually be risking more to earn less, which is unreasonable. Your Take Profit needs to be more pips away from the entry for both Buy and Sell positions than your Stop Loss.
You will determine your Risk to Reward Ratio according to the prevailing market conditions at the time you are trading. But always let your possible reward be more than your possible loss.
For example, in a Buy position, your Stop Loss can risk 10 Pips from 1.1620 to be at 1.1610 as your Take Profit targets 50 Pips to be at 1.1670. For a Sell position, your stop loss will be at 1.1630 while your Take Profit will be at 1.1570. That will be a Risk to Reward Ratio of 1:5 which is reasonable.
If you expose more than you are bound to gain, you are harming your account for no reason. Also, depending on the prevailing market conditions, determine whether to set your Stop Loss and Take profit levels so far apart of so close.
7. Use of Stop Loss and Take Profit Orders (Manage your Money While Trading).
Some traders do not use Stop Loss and Take Profit Orders at all. They may leave a trade running hoping it will go in their favor or even opt to keep watch.
If you leave that trade running and it decides to go against you and yet you are not there to exit it, you may return to a negative account balance.
Should you opt to keep watch, you may be too slow to act and the price may go ahead of you rushing against your prediction and you will lose more than you would have if you had a Stop Loss on.
If you do not apply Take Profit Orders, what really is your target?
Is any profit enough for you?
You may at one instance be in a hugely winning trade but because you didn’t have a target to take such profits, the next second the price will reverse and wiped off your gains.
It may further reverse to the point of shifting to the losing end, turning your account negative.
Use Stop Loss Orders to exit losing trades early and Take Profit Orders to take enough Profits just in time before the price reverses leaving you behind and trapping you in a losing trade.
8. Position Sizing (Manage your Money While Trading).
Sizing your positions is another way to manage your money in Forex trading in Olymp Trade.
Does one direction seem to be thriving in trend growth and your trades pointing to that direction?
Then open more trades in that direction to keep on winning.
However, if one direction seems to be doing badly in trend growth and most trades in that direction are losing, close some of the losing trades.
Coupling opening of more winning trades and closing of more losing trades is a method that will relieve your account of losses and instead inject some more profits. This, as it is clear, will be preserving your precious account from possible depletion.
9. Avoiding Huge Leverages (Manage your Money While Trading).
I know Olymp Trade offers you Leverage of up to 1:500 but you may consider not falling for it. As they say, leverage is a double-edged sword. In as much as it helps you slay the markets in gaining you huge profits, it can also come for your throat the next minute, slaying your account mercilessly.
What then should you do?
Choose leverage you can afford if it came acting against you in terms of losses. Huge leverages can be the cause of your undoing on a bad day.
10. Intuitive Money Management.
This method comes last for obvious reasons. Let’s see if it is actually a money management method.
This involves trading in Olymp Trade with sense or your guts and feelings. I would never advise any newbie in Forex and Fixed Time Trading to utilize this method though.
If your guts make you strongly feel that the price will go in a specific direction, invest more. If your gut doesn’t really advise towards a certain direction, you can invest a smaller amount or even give up on such an opportunity.
Here is the problem. If you win more trades by trading your guts, you may be puffed up to start having false confidence in your guts, and one day they may fail you.
Trading Psychology advises against overconfidence and too much hope in trading, yet gut trading promotes those very aspects. If you are not an experienced trader and haven’t been on the markets long enough, stick to the other money management methods and leave this one to the pros.
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