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Don’t break your own money management rules

BY , , , , , , , ,



In this video:
01:26   A good money management rule
03:46   Taking your time with your trading
07:43   5th birthday offer live between the 5th and 9th of May

Don’t break your own money management rules

Don’t break your own money management rules, because if you do, there are generally some fairly big consequences. Let me discuss that and lots more with you right now.

Hi Forex Traders. It’s Andrew Mitchem here, the Forex Trading Coach, and welcome to my latest weekly video and podcast. Today is Friday the 2nd of May, 2014, and it’s a non-farm payroll or non-farm employment day today. So probably not expecting a great deal of price action right now through the Asian session. Possibly not much in the European session until we get into the US session and that news release. On that subject also just to let you know that the market right now is very, very quiet. It’s not that easy to trade actually and the reports that I’ve read is that a lot of pairs, for instance the GBP/JPY, which usually moves a lot. A lot of pairs are at the lowest volume and the lowest daily range for seven years. So if you’re finding it tough right now, just hang in there and don’t worry too much about it. A lot of it could be due to the market conditions. But another thing it could be is to do with the topic of this video and podcast. 

Don’t break your money management rules because if you do, the consequences are usually, they usually bite you actually so they usually get you in the end. That’s really important because I always have a rule for my own trading and I suggest for my clients, look at trading with this same rule. No more than half a percent or 0.5% of your account on any one trade. 

A  problem I find with a lot of people is they seem to think well because my account maybe quite small it means I can break that rule and risk a lot more. If you’ve got an account, let’s say $1,000 for example. That means you’re risking only $5 per trade; it’s still half of 1%. A lot of people think well that’s just silly. I can’t make money on that or look it’s only $5 therefore I’m going to go risk $50. I’m quite happy to risk $50 on this one trade. The problem being is that it doesn’t teach you discipline, it doesn’t teach you about good accurate money management. You see, if you’re risking $50 on a thousand dollars account, instead of 0.5% you’re actually risking 5% on that one trade, which is far too much. 

It’s important to get into a routine and a discipline and treat your account regardless of its size, as if it were a huge account. Treat it as a professional trader would. A lot of people don’t realize that the way and the reason why people end up being professional traders and fund managers and things like that, and remain in the markets for over ten years like I have, is because I don’t break those rules and I do treat my trading seriously and I do treat it as a professional. So if your account is a thousand dollars, risk $5. If your account let’s say $10,000, risk $50 per trade. If your account is $100,000 risk $500 per trade. It’s the same risk and what that does is it gets you into the good discipline and good understanding of money management and risk. So just want to put that point across there. Don’t say, “I’ve just got a small account and I can afford to lose some money. I’m going to risk $50 or $500 if my account is only a thousand dollars.” It’s not the way for longevity within the Forex market. It gets you into a very bad state of mind also. So take that on board and absorb it because it’s a very valuable piece of information that can really help you.

Take your time

The other thing that I want to talk about is taking your time with your trading. Take your time on a day to day basis but also an advice I give to a lot of my clients is take your time going through the course. I get some people coming to me and generally they don’t end up being clients, and that’s fine, that’s probably a good thing. They say to me “Look Andrew I need to make an X number of dollars on my account, only this size, and I need to make a living from trading.” The problem is, is that it’s highly unlikely  you’re going to make a living from trading if you’ve got a 5 or 10 thousand dollar account but making enough money to live on for today. It’s also very dangerous to actually try and make a living from your trading initially. 

Give you a couple of examples actually. People I’ve been talking to this week. One gentleman, called Bruce from Christchurch in South Island of New Zealand here.  He phoned me up a couple of days ago. He’s been a client for just over a year and he said, “Andrew I’ve taken my time, I’m still on a demo. But since December I’m up 63% on my demo account, by trading at half of 1% risk per trade. So it’s and enormous achievement. Yes it’s on demo, but the good thing that he’s doing is that his demo account starts at $10,000, because he is looking at opening a live account very soon now with $10,000. So he’s been treating his demo as if it were live. Sure it doesn’t have the exact physcological of effects of the money management and the, no it’s not the management but the sort of fear and the greed doesn’t come into because it’s a demo. But he’s been really conscious of keeping that account like it were a real account. But the great thing is, he’s taken his time, he’s had 6-7 months with my system to work it out, to take his time to develop his style, he’s take on it, learn it and then the last say 5 months from now, from December to April, he’s up 63% by keeping his risk low, high reward to risk trades. He’s now happy and comfortable to go live and really in theory, there should be nothing he needs to change. Now you imagine if  in the next 5 months, if he goes live and he makes 63% as well. He’s going to be one very happy person but it’s just taken him like a year, year and a half by that time to get to there. That’s fine but it’s far better than people rushing in trying to double their account in the first week and make a fortune, and then blow everything. So I’d rather that happen.

Second example, a gentleman called Lincoln over in the US. Lincoln also took a little while to get going, several months in fact. But he sent me a lot of emails over the last few months, of just really good trades. Now he likes trading just the EUR/JPY. That’s his choice and it suits him. He understands the pair. He trades mostly 5 and 15 minute charts. He sent me some trades and I’ve seen the trades and I’ve seen his account to prove not only the setups but showing them on his account. One day last week he took four trades on the 5 minute charts on the EUR/JPY. He lost one and was profitable on the other three. He made +4.5% on his account by risking half of 1% on each of those four trades. So he had a maximum risk over all four trades that were all taken on the same day, of 2% of his account. So four trades, half a percent each, 2% risk. He ended up making 4.5% return and it’s just phenomenal when people are doing that, and so again, the lesson is obviously controlled risk, high risk to reward that I’ve talked about many times, and also take your time. Lincoln took several months to get going. That’s fine, he’s sought my help, he’s been on my webinars but he’s now really flying and doing extremely well. So, two really good success stories there.

5th Birthday promotion 5th-9th May

Last thing that I want to talk about. The 5th birthday offer that I’m holding is live between the 5th and 9th of May. So by the time you’re watching this, that’s probably going to be live for you. If you haven’t taken my course and you are thinking of it, this is going to be the best time in terms of the price ever in the last 5 years since I started, to take advantage of joining. So I’ve now taught clients in over 48 countries around the world in the last 5 years. Some of them live in person, more recently on the video course. So just a really great success from the company and it’s due to I put a lot of effort in to make the trading work for my clients. The system and the strategy itself is quite logical. There’s a lot of support and backup help there for people that have just helped turn that trading around. It’s just really gratifying for me, it’s very pleasing, and of course for them. Yes they’ve invested some money in their education and now they’re making money back in return by themselves from trading Forex. Which, at the end of the day, that’s what they joined for. So it’s just a 5-day promotion it’s there for you to take advantage of if you would like to.

That’s all for now. I hope you’ve enjoyed this webinar and video and podcast. There’s some really valuable information there. Take it away, digest it, re-watch it, re-listen to it, and ask me any questions that you have. So, this is Andrew Mitchem from the Forex Trading Coach. I look forward to bringing you more information this time next week.