One important thing why most of the very good traders fail in forex trading is money management. If you don’t care about money management in forex even if you are a very good trader you will eventually lose. The general rule is don’t risk more than 3%(or 4%) of your margin available.

For example lets say you have $5000 mini account. If you don’t care about the money management and if you trade with 1 standard lot 5 losing trades will sweep away your account. If you follow good money management rules, the following will be the statasticks.

Lets say you are following 4% money management rule. 4% of $5000 will be $200. So you will trade it wil 0.2 lots(first trades).

You will be left with $4800.

If you want to take another trade 4% of that will be $192. Since 0.19 lots can not be traded (until unless it is a micro account), you will trade with 0.1 lots. if all the trades are lost, it will take 49 trades to lose the whole account(if you lose 100 pips for each trade). See the difference. 5 trades and 49 trades.

Now lets see the winning part.

If you take all the trades with 4% risk management, it will take around 14 successfull trades to make it $7800. (Lets say you are making 100 pips for each trade).

Initial Amount – $5000
Each Trade – $200
14 successfull trade – 14 X $200 – $2800
Total Amount – $5000 + $2800 – $7800
Total Number of Trades – 14

Now 4% of this will be $312 which is 0.3 lots. It will take 8 successfull trades to make the amount to $10200.

Initial Amount – $7800
Each Trade – $300
8 Successful Trades – 8X $300 – $2400
Total Amount – $7800 + $2400 – $10200.
Total Number of Trades – 14 + 8 – 22

Now 4% of this will $408 which is 0.4 lots. It will take 6 successfull trades to make the amount to $12600.

Initial Amount – $10200
Each Trade – $400
6 Successful Trades – 6 X $400 – $2400
Total Amount – $10200 + $2400 – $12600
Total Number of Trades – 22 + 6 – 28

Now 4% of this will be $504 which is 0.5 lots. It will take 5 successfull trades to make the amount to $15100.
Initial Amount – $12600
Each Trade – $500
5 Successful Trades – 5 X $500 – $2500
Total Amount – $12600 + $2500 – $15100
Total Number of Trades – 28 + 5 – 33

Now 4% of this will be $604 which is 0.6 lots. It will take 5 successfull trades to make the amount to $18100.
Initial Amount – $15100
Each Trade – $600
5 Successful Trades – 5 X $600 – $3000
Total Amount – $15100 + $3000 – $18100
Total Number of Trades – 33 + 5 – 38

Now 4% of this will be $724 which is 0.7 lots. It will take 3 successfull trades to make the amount to $20200.
Initial Amount – $18100
Each Trade – $700
3 Successful Trades – 3 X $700 – $2100
Total Amount – $18100 + $2100 – $20200
Total Number of Trades – 38 + 3 – 41

Now 4% of this will be $808 which is 0.8 lots. It will take 3 successfull trades to make the amount to $22600.
Initial Amount – $20200
Each Trade – $800
3 Successful Trades – 3 X $800 – $2400
Total Amount – $20200 + $2400 – $22600
Total Number of Trades – 41 + 3 – 44

Now 4% of this will be $904 which is 0.9 lots. It will take 3 successfull trades to make the amount to $25300.
Initial Amount – $22600
Each Trade – $900
3 Successful Trades – 3 X $900 – $2700
Total Amount – $22600 + $2700 – $25300
Total Number of Trades – 44 + 3 – 47

Now 4% of this will be $1012 which is 1 standard lot. If you take 2 trades now the amount will become $27300.
Initial Amount – $25300
Each Trade – $1000
2 Successful Trades – 2 X $1000 – $2000
Total Amount – $25300 + $2000 – $27300
Total Number of Trades – 47 + 2 – 49.

The same 49 trades will make the initial deposite of $5000 to $27300. So instead of not following the money management rules and sweeping the account in less number of trades, it better to follow the money management rules and increase the amount substantially. When I started my tradeing I did around 70 to 100 trades per month some of them are winning and some of them are loosing. Eventully I lost the account. Insted if I followed the money management rules and took only successfull trades I would have made much money and I would have been in the game.

The number of trades may vary since each time we don’t make 100 pips. But we will be in the game for a long time.