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Turbulent Markets – Forex Markets For Fixed Odds Trading : Forex Trader System

Turbulent Markets – Forex Markets For Fixed Odds Trading

 

‘Rule number one of investing is never lose money. Rule number two is never forget rule number 1’ – Warren Buffet

Money management or risk control is as important in Fixed Odds trading as it is in any other form of trading or investment. It tends to be one of the most overlooked aspects of trading and yet arguably is the most important in generating long term trading success. There are several pitfalls. A common mistake that many traders make is to stake too high a percentage of their bank or ‘pot’ on a single trade.

This can be for any number of reasons; inexperience, a desire to accelerate gains quickly, or overconfidence from a run of winning trades. Psychologically the trader can feel over exuberance with the high of success and the desire simply to ‘get rich quick.’ But losses to can also lead to money mismanagement. In this case the trader, sitting on a loss and with a dent to both his bank and his pride, will attempt to win back his loss quickly so he can then resume the upward trend.

Fixed odds trades are unique amongst investments in that you know both your profit and liability before entering the trade. Therefore you can never actually lose more than you have placed on the trade. However they also differ from other investment types in that stakes tend to be large in comparison to the profits received. So therefore a losing trade at 10% will take several winning trades at the same level to recuperate the loss. Therefore it is essential that there is sufficient capital in the bank to allow for these losses. Losses will inevitably occur, so you will need sufficient capital to recuperate them and stay in the game.

Several studies have been made into the money management of successful traders and have shown surprising results. Many top traders never risk more than 1-2% on a trade. While you will never get rich quickly with such an approach, you will also never be in danger of losing the house. Furthermore small positions provide the freedom from stress! You are never going to worry if you lose a small position and ultimately you are never going to make any money if you go broke!

One way of thinking is to ask yourself before a trade, ‘how much can I lose on this trade’ rather than ‘how much can I win.’ By simply asking that question before placing the trade you will get a feel as to whether your current money management and risk control is suitable for strategy.

Remember as with all trading you are only ever playing the odds. Even if 95% of all your trades expire for full profit the five losers could come in a row. Would your current fixed odds strategy cope with this?

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