Survive Forex Drawdowns With A Money Management Plan

It can be very tempting to whip your credit card out of your wallet in order to take advantage of a great opportunity for a trade in your top Forex trading system. However, prior to taking that credit card out, consider that without sensible money management you could empty your account faster than you realize.

No form of investment is a guaranteed money maker and Forex is no exception. In fact due to the quantity of leverage given to traders and investors in the Forex market, greed can quickly take over and all commonsense is thrown out the window. Professional investors and traders realize that many of their trades, even up to half of their trades, will not make money. The reason why they are prosperous is that they have a appropriate money management plan so when they do lose it doesn't empty their account.

In any Forex trading system, there will be a drawdown. The trouble is, we never really know when the drawdown will begin. If a Forex trading system proves it is 80% successful, that means approximately 20 out of every 100 trades won't be prosperous. If those 20 trades all happened in a row (yes, it can happen!) your investment funds could be completely emptied if you are not using sensible money management and you wouldn't be able to continue trading the system for the next 80 potentially profitable trades.

Some aggressive Forex traders claim that the best way to accumulate large profits rapidly is to risk more of your money. While this may be true, it's also the fastest way to lose all your money and should really be considered as gambling. There are a lot of stories around about those that made their first million trading Forex and then lost it. The most successful Forex traders and investors did not get rich fast, they took a slow and steady approach and learn to make money trading Forex for the long-term.

An experienced Forex trader only risks a low percentage of their trading money on each trade. The profits will not be as large as those of the aggressive trader, but when the drawdown arrives, the Forex trader practicing sensible money management will be more prepared to weather the storm.

Sure, building up capital slowly is not an exciting plan. But, you're in the Forex market to make consistent profits, not for the excitement. If you're not using sensible money management when investing and trading the Forex market, you are downright gambling. Even professionals that earn a living playing poker and other casino games use some variety of money management system. They realize that they can't win every single tournament or game they enter, so they only risk a low amount of their bankroll on each one. This allows them to bounce back much more quickly when a losing run hits.

In summary, don't let the promise of making money rapidly let all commonsense be dismissed. Trading Forex is not a way to get rich rapidly, it's an investment option that can generate consistent profits for those who practice sensible money management.