Traders who failed in forex trading because of they don’t understand the important of money management. Money management will let you know how much you should risk per trade. The aim of money management is the preservation of trading capital to ensure your survival over the long term. The most common method of money management is the percent risk model. It will tell a trader not to risk more than how many percent of your trading account balance on any one trade. Generally, a range of between 1-3% is acceptable percentage to use in order to make money in the long term.
So if you want to follow forex trading signals providers. How can you decide your money management? Let’s see the Zulutrade’s performance page here:
(The following data print screen on 12/09/2010 from zulutrade. It is for this article only, it has no implication on future performance of these forex signals providers. )
What we should first check is the “maximum drawdown in pips”. “Maximum drawdown in pips” is the most important factor in my money management. I recommend that you can risk no more than 3% of your account balance. The number of weeks the forex signals provider trading is another factor that we should consider when we choose the forex signals providers. The forex signals providers should have at least 10 weeks trading history.
So now I show you my opinion on what lot sizes a forex signals follower should set when following zulutrade’s forex signals providers.
First is first, let me explain what’s mini lot and micro lot:
One mini lot is 10,000 units of the base currency(usually US Dollars), 1/10 of the standard lot.
One micro lot is 1 lot = 1000 lot size, 10 cents per pip, 1/100 of the standard lot.
1. Let’s see SystemsFX LIVE.
The maximum drawdown in pips is 348 pips. Let’s say you have $10000 in your account and the 3% of $10000 is $300. So in one trade your stop loss should be set no more than $300. 1 pips in one mini lot is equal to $1. So maximum lots you can trade in one trade is 300/348=0.86 mini lot.
2. Let’s see MayfairSwing.
MayfairSwing has 679 maximum drawdown pips. So the $10000 account can trade 0.44 mini lot with maximum $300 stop loss in one trade.
BELONGTOYOU has 155 maximum drawdown pips. So the $10000 account can trade 1.94 mini lot with maximum $300 stop loss in one trade.
4. From Circle-q:
Circle-q has 300 maximum drawdown pips. So the $10000 account can trade 1.00 mini lot with maximum $300 stop loss in one trade.
5. The last one: SenshFX
Circle-q has 187 maximum drawdown pips. So the $10000 account can trade 0.62 mini lot with maximum $300 stop loss in one trade.
Now you should know what’s my opinion on money management in forex trading. You can also check the forex signals providers’ win ratio, trading time, followers, average pips per trade and so on to make sure you choose your proper forex signal provider(s).
May the pips be with you!