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Article

Are These Simple Trading Mistakes Costing You Money In The Forex Market

David Jenyns

The 2% rule is a powerful tool in Forex trading. By adopting this rule you're using a strategy that decreases the size of your losses during losing streaks, an important consideration. There is, however one small caveat that you need to be aware of when using the 2% rule to calculate how many Forex shares you are going to buy. As you know, the number of shares you can purchase is determined by your maximum loss and the size of your stop. This means that by increasing your risk, you can also increase the dollar value of the position you open. By simply shrinking your stop size, that is by setting a tighter stop loss, you can increase the dollar value of the position you open.

To avoid a situation where you could end up with excessively large positions that may put your Forex trading float at risk, you can choose to introduce an extra rule. This rule would limit the dollar value of a position to be no more than a set percentage of your entire Forex trading float.

For example, you might decide that you'll never open a position that has a dollar value of more than 25% of your entire Forex trading float. This rule would only be executed if, after calculating the formula that determines how many shares you buy, you find the dollar value of that position would greater than 25% of your float. If this happened, you would scale down the position to make sure it did not exceed that 25%.

The percentage that you decide upon will depend on the type of system you're trading, the size of your float, and your personal tolerance for risk. Generally, smaller Forex trading floats might use 25%, and larger Forex trading floats might use as little as 10% or even 5%. There are no definitive numbers, and the percentage that you choose will depend on your personal circumstances.

Once this tendency is corrected for you will have all your money management rules in place, ready to control your risk in the Forex market. Now you need to take the next step. Test your system to find out which of the variables best suit you, remembering always that position sizing is the most significant part of any system design. It is the lynchpin of money management. Once you've tested your system, and fine-tuned your rules, you will be well on your way to becoming a successful Forex trader.

About the Author

Discover BIG profits from the market by downloading your FREE copy of David's new Ultimate Stock Trading Systems course. http://www.ultimate-trading-systems.com/forex.htm

Forex Forecasts News

forex forecasts

DAILY FX FORECASTS FXDREAM EUR/USD Date: Tue, 26 August 2008 07:30:05 Resistance levels: 1.4750/1.4800/1.4900 Support levels: 1.4660/1.4610/1.4550

Daily Forex Forecast - FXStreet.com

Home > News > Forex News Send Print Add To IMF cuts world growth forecasts - source Tue, Aug 26 2008, 18:40 GMT http://www.afxnews.com

IMF cuts world growth forecasts - source - FXStreet.com

LONDON, Aug 26 (Reuters) - British temporary power provider Aggreko Plc (AGGK.L: Quote , Profile , Research , Stock Buzz ) said pretax profit grew 43 percent in the first half and it expected strong emerging market demand would help it exceed market ...

UPDATE 1-UK's Aggreko to exceed expectations, H1 profits up - Reuters

Aug 26 - U.S. Dollar Could Be Vulnerable to a Blow Up in Fannie Mae or Freddie Mac Aug 22 - Three Reasons to Buy USD/CAD Aug 20 - Forex Trading Forecasts - Euro Dollar is Likely to Fall Further Aug 18 - Japanese Yen Forecast Ahead of BoJ Meeting Aug ...

U.S. Dollar Could Be Vulnerable to a Blow Up in Fannie Mae or Freddie ... - DailyFx

SYDNEY, Aug 28 (Reuters) - AUSTRALIAN CREDIT/FOREX (0200 GMT) SNAPSHOT_____ FOREIGN EXCHANGE (against previous Sydney close) <AUD=> 0.8669/72 (0.8593/95) <AUDNZD=R> 1.2257/80 (1.2226/43) <AUDJPY=R> 94.92/95 (93.76/81) <JPY=> 109.44/49 (109.12/15 ...

Aussie dollar jumps on strong data, bonds down - CNBC

Aug 26 - Euro Dollar Could Reach 1.40 Once The ECB Starts Cutting Interest Rates Aug 26 - U.S. Dollar Could Be Vulnerable to a Blow Up in Fannie Mae or Freddie Mac Aug 22 - Three Reasons to Buy USD/CAD Aug 20 - Forex Trading Forecasts - Euro Dollar ...

Euro Dollar Could Reach 1.40 Once The ECB Starts Cutting Interest ... - DailyFx

Aug. 28 (Bloomberg) -- The euro may rise against the dollar for a second day as European Central Bank council member Axel Weber said discussion about a reduction in interest rates is ``premature'' and crude oil prices increased. The currency advanced ...

Euro May Climb for Second Day on Weber's Comments, Crude Oil - Bloomberg

TOP POLL STORIES > McCain takes 5-point lead over Obama [ID:nN19486724] > Analysts lower oil price forecasts as demand falls [O/POLL] > Japan retail investors pessimistic on stocks [ID:nT189571] > Europe, Japan faltering; U.S. recovery in '09 [ECILT ...

POLL-TAKE A LOOK-Reuters polls and surveys - Reuters UK

STOCKS: Stocks sank in light trading Monday as worries about American International Group Inc. touched off broader concerns that the deterioration of the credit markets will bring more big losses for financial companies. The Dow Jones industrial ...

Thomson Financial Europe AM at a glance share guide: Stocks fall; oil ... - Forbes

Aug. 28 (Bloomberg) -- Treasuries were little changed, snapping a three-day gain, before a $22 billion debt sale and a report that economists estimate will show gross domestic product grew faster than the government first estimated. The five-year ...

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