By Ahmad Hassam
Perhaps the best advice that you will receive from someone is live to trade another day. Currency markets are brutal, volatile and ruthless. In minutes you can lose many pips. You should learn to survive in the markets in the long run. Do not lose all your money in a single day.

The single most common factor that causes many traders to blow up their accounts is greed. When you get greedy, you start taking unnecessary risks. You will spend countless hours trying to discover the Holy Grail technical indictor or a forex robot that will make you rich. You believe that by discovering that secret of investing, you will become rich without losing a single trade.

Unfortunately there is no such Holy Grail for anyone. No one has ever found such a secret. You cannot always win. You will win and you will lose. Learn not to risk more than 2% of your account on one single trade. Grow your account incrementally and slowly over time. Never ever get into the temptation to risk big trying to make one single winning trade that can make you rich.

The most important thing that you should know is how much you are willing to risk in a single trade. This is more important than your trading strategy. I said dont risk more than 2% in a single trade. But if you are a risk taker and want to be aggressive, you can go up to 5%. Dont exceed 5%, stay between 1-5%. If you are risk averse and are conservative, on the other hand, you should consider risking between 1-2% only.

Once you have decided on the risk level you are going to take, knowing the rest is simple for you. Suppose you have a $50,000 account and you decide on a risk level of 2% for a single trade. How much you can risk on a single trade? You can only risk (50,000) (0.02) =$1,000, this is the maximum you should risk on a single trade.

However, if you are trading more than one position at the same time, the amount may become higher. Lets suppose, you are in 3 trades! You risk only $1,000 per trade. So the total money at risk will be (3) (1000) =$3,000. When you have determined your risk, you are can determine the trade size.

Trade size is the number of contracts you purchase in any one trade. To determine the trade size, you need to first determine where you want to put your stop loss. Lets use an example to make it clear. Suppose you are willing to risk $1000 on trading EUR/USD pair. You decide on a stop loss of 50 pips. Each pip on EUR/USD pair is $10 worth. So the number of contracts that you need to trade are (1,000)/ (50) (10) =2.

Once you have determined your risk level and calculated the trade size, you have taken the guesswork out of your trading. Now, you can sleep well knowing how much of your amount is at risk and that you are going to be able to trade tomorrow, no matter what happens today.

Use these common money management rules and avoid the pitfall of losing almost all the money in your account. Learn to survive the markets and trade another day. This can help your trading take a quantum leap to the next level of profitability. – 23596
About the Author:
Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading and swing trading stocks and currencies. Trade Dow Futures. Learn Forex Trading.