Forex Trading Money Management
I've been getting stuck into the book that I recently borrowed and have to say that thus far the chapters that I've found most helpful/interesting have been "Using oscillators to predict trade opportunities" which is written by Tom DeMark andmore helpful from a basics point of view is the final chapter (I've been skipping chapters that sounded boring) titled "Controlling risk with money management techniques" which is written by Courtney Smith.
The chapter by Tom DeMark is interesting in that he introduces some new oscillators which he claims are more accurate than RSI and some of the other oscillators. I'm planning to write a meta trader indicator of some of his oscillators so that I can see if they actually are… On this note, I've been playing with some expert advisor coding in metatrader working with RSI and have to say that I'm running into troubles with RSI calling a low too quickly after a breakdown. The workaround to this is to set a lower stop loss which has problems in that losses are bigger than if the trade timing was just right. When I get around to implementing TDREI and some of his others then I can see if they do perform better.
The chapter which I've found most helpful thus far is the money management chapter. I've always thought about trading as trading in lots and once your lots are gone your finished. He writes about always working with percentages, if you're only ever betting 1% of your capital (at the time, not necessarily your starting capital) then it will take a very long time for you to be wiped out, however if you go in and bet 50% then you'll be wiped out very quickly. One of the issues here is that obviously your profits won't be as amazing as if you were calling it right and betting 100% of your capital.
In the expert advisors that I've been experimenting with I've switched to percentage based lot sizes, and instead of changing my lot sizes based on my recent performance (which most lot size methods I've seen use) I've just been trading 1% of my capital at the time, so as I lose money I bet less and less, until I end up having $10 in my account. I should also mention that a big part of this money management method is to also have your stop loss levels set at the risk level that you have defined in your strategy… I don't think I've done a very good job of explaining that last bit, probably because I need to understand it a little better myself and how to work this into my FOREX trading taking into account leverage etc.
Original source : http://www.forexhowto.com/
