These money management rules are designed to increase safety of cash deposit and ensure safe conduct of operations with the highest possible profit. In another way they are called the rules "Money Management". The modern trade requires strict compliance with the rules of MM, but does not guarantee a profit.To provide security of cash deposit it is necessary to ensure the implementate few conditions.
- The total amount of investment shall not exceed 50% of the total capital. This principle sets the margin calculation rule under opened positions. Many analysts believe that the percentage of investment should be even smaller: 5% - 30%.We note especially that we are talking about the total amount (several transactions). Ie, this rule does not mean for example that a trade deal, putting it right 50% of the deposit - it is reasonable.
- The total amount of funds invested in one transaction may not exceed 10% - 15% of total equity. In this case the trader is insured against investing excessive funds in one transaction, that can lead to ruin. Imaginatively this rule is equivalent to "not to put all your eggs in one basket."
- The rate of risk for each open position defined by the exposed level stop-loss should not exceed 5% of the total capital. Thus if the transaction will be unprofitable then the trader is willing to lose no more than 5% of the total amount of their funds. The figure of 5% is taken from Murphy's work, however for example Elder gives a figure of 1.5% - 2%.
- The total amount of pledges to be made at the opening positions on the same group of markets must not exceed 20% - 25% of total equity. This follows from the fact that in relation to the dollar, many currency behave the same way, especially when exiting the economic news over the USA. Therefore in order to diversify the risks must be run on both currency pairs, having in its composition the dollar and the cross-rates. Under this condition loss of some open positions will be at least partially covered at the expense of profits on the other. There are certain rules regarding the nomination of the stop-loss and take-profit at the opening position. All currency pairs are divided into high volatility and low volatility. Most traders work on the so-called "intraday" trading where positions are opened for one - three hours these positions work out basic intraday movements in the market. In order to leave the position to the next day we needed a quite good reason. The value of currency volatility determines the level of the so-called "price noise", which is defined approximately as follows: taken 24 hours candles with zero hours Greenwich Mean Time and zero hours and calculate their length between shadows (the distance in points between the points higр and low), and the resulting value is divided by 24. Experience shows that the minimum value of price noise is equal to near 30 items, such currency instruments having a low volatility. When the magnitude of the price 'noise' from the 40 points the exchange tool have a high volatility. For intraday trading ("intraday") does not make sense to put a stop loss is less than the price noise, ie invoiced value of the stop order can not in principle be less than 35 points.
- Expose the ratio of stop-loss / take profit for one open position may not be less than about 1: 2; in other words on the basis of the above the invoiced value of the stop-loss can not be less than 35 points, and the value of Take Profit respectively is less than 60 points. This rule allows for a ratio of successful and unsuccessful transactions 1: 1 have to score a small profit.
There is a certain number of rules that must be followed in the conduct of trade. Generally speaking, the work on the FOREX requires high self-discipline and organization from trader, as well as the application of certain of the system. If we talk about intraday trading it is necessary to perform certain daily schedule:
- When opening the trading terminal at the beginning of the day it is necessary to analyze the current state of the market, that is to answer the question: where are now the prices are and why they are there, what was happening at the time while the terminal was turned off and the price movements are not tracked by the trader.
- You must acknowledge the calendar release of economic news today. What time is GMT, which overlook the news and how they can affect the market conditions and price movements. Fundamental analysis skills are acquired only with experience, you need a practical trading experience.
- Determine the current power levels on the main used to trade currency instruments, determine the current intraday price range.
- While basing on the analysis make the trading plan for the day, namely: when the public price levels possible allow entry into the market exhibited at the level of stop-loss, the potential profit margin and consequently the level of take-profit. What are the conditions of entry into the market, out of it, what the price situation would be abnormal and require immediate exit from the market. It should be understood that the decision to enter the market guided by the needs to analyze the findings and do not respond to the ongoing loss of open and carried over to the next day positions. When you open a position you need to clearly plan the duration of the transaction and after the scheduled time to assess the possibility of exit from the market before the emergence of any significant changes in price as a result of market movements.
- Strictly stick to adopted trading plan. Upon entering the market must be clearly give an answer to the question: "What is the reason for entering the market." That answer must be a combination of coincidence with the findings of the analysis of the current price situation, confirmed by technical indicators (at least two).
- Strictly prohibited to move the previously calculated level of stop loss upward of possible losses, no matter what the situation seemed. Moreover it is considered a risky operation without exposed the stop level.
- When entering the market must be considered possible movements in exchange rates on exit - economic news. Short strong movements in exchange rates can break the stop orders, after which the market will go in the direction of a certain trader. Recommended 30 minutes before the release of economic news that could affect the exchange rates to a large extent, not to open new positions to defend the current position, moving the stop orders at the point of no loss or closing the current position, taking into account possible fluctuations.