BASIC MONEY MANAGEMENT - LOT SIZE - REVERSAL - ACCOUNT SIZE

Hey Everyone,

A repost to remind newbies of some basic money management fundamentals.

We see too many new traders trade with random lot sizes with no understanding on the impact it has on account sizes, which result in not only losses but BLOWN accounts. This post is by no means a risk or money management strategy but more so just basics on the movement of reversals and how the lot sizes impact the value of your account during this reversal.

Trading with the right lot sizes allows a trader to manage their account/money when the trade goes against them. The right size allows a trader to move a range without blowing their account and without seeing their account reverse to the point of no equity. This type of trading gives traders anxiety and in return this anxiety impacts trading psychology . This then has a ripple effect and impacts your trading decisions and analysis.

The example we show on the chart is an entry of SELL that reverses by 380 PIPs. This movement happened in literally 2 candles (1hour candles) , so in two hours the price from entry reversed by 380 pips. This example then shows what this equates to in monetary value dependent on lot sizes.

The example shows that anyone with a £500 account trading this movement with a lot size of 0.20 would have blown their account.

Lot size usage should be based on the size of your account for example;

£500 size account - we will only use 0.01 size lot sizes with maximum deployed total no more than 0.05. This will allow an account to survive volatile movements. Also using stop losses on top of this setup further strengthens the risk management.

£1000 size account - we will use 0.02 lot sizes with maximum deployed total no more then 0.10 any given time.

£2000 size account - we will use 0.03 lot sizes with maximum deployed total no more then 0.30 any given time.

£5000 size account - we will use 0.06 sizes with maximum deployed total no more then 0.50 any given time.

Basically 0.10 for every £1000, as the total deployed usage allows us enough flexibility of movement on the chart and then using stop losses on top of this, gives us further control of our money management.

We hope this quick basic insight helps some of the newbies better manage their lot size usage.

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GoldViewFX
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