Money management is the seemingly simple, yet challenging process of managing account holdings by trader. Money management can get particularly involved if a Forex trading strategy involves a variety of entries with different trade weight. Advanced traders often use martingale and baskets stops to negotiate risk probability setups that favor their approach. Any mistake made in money management side of the trade can destroy the trader’s ability to make money on even a healthy setup long term.

Let’s assume a trader has a setup that offers a 60% chance of winning and a 40% chance of losing. The trader uses his or her money management properly, the expectancy or average winnings should be greater than the expectancy for the average losing which, after a statistically responsible about trades should lead to profit.

The key to becoming a responsible money manager is to simply applied management.

Now let’s assume the setup that is stated above, the 60/40 setup, is poorly managed, and the trader places different weight on different trades for no real reason. Let’s assume the trader deviates from maintaining a strict money management system and risks more weight on a losing trade.

Does this deviate the 60/40 probability?

Absolutely.

When trading becomes dynamic, and averaging up or down becomes involved, incorporating this dynamism requires money management to become even more advanced, and stringent rules are needed to maintain capital and keep a trader float.

Always work through your money management on paper, and employ a statistical model of at least 100 trades where wins and losses are considered.

Trading Forex is about discipline and testing. It has little, if anything, to do with luck.