One of the most important elements of long -term success in the Forex market is competent capital management. Reasonable investment while maintaining the corresponding level of risk. Both of these conditions are equivalent and interdependent, because in order to well understand and skillfully use risk management strategies, you must be able to correctly manage your money.
Capital management.
Money management is primarily reduced to what the amount of money you can take a chance by opening a position. As a rule, the determination of the risk level depends on the amount of funds available in the account. Effective money management also means that you do not trade for money that you cannot lose. If you operate with capital, which you cannot lose, then it is guaranteed that your decisions will be subjected to emotional pressure, and this is the first step to zero your account at the broker.
Money management also means a plan for the use of profit from your investment. What will you do? Display a profit from the broker and transfer it to a savings account, or you will open a new position on Forex for this amount by increasing your capital? The answer to this question is subjective, but the main thing is that your money management plan is fulfilled, and not change under the influence of emotions.
Risk management.
To succeed in the Forex market, you need to understand well what are your risks with the expected profit of this investment. Looking at the market through the prism of the risk and profitability of each investment, you must operate on probability categories. For example, you can look at the entrance signal to the market, and then the course of your thoughts should be approximately as follows: “The entrance at this moment is associated with such a risk, and if everything goes, as I expect, I can make money so much”. If the profit exceeds the risk, at least 1.5 times, then this signal is worthy of verification and you can really try to enter the market. But each investment with a lower ratio of profit and risk is not worth your attention.
The use of risk categories and profitability of each investment when working on Forex, significantly increases the number of successful investments and significantly reduces the number of unsuccessful transactions. The application of the principle of risk ratio and benefit works, but only if it is used for certain entry signals. If you begin to invest too much or not invest without a thorough analysis of the market, then quickly lose money from your account.