Capital Management Methods
When trading on Forex, it is necessary to know how to correctly place your capital; how to calculate the amount of funds needed to make a deal in order to obtain sufficient earnings and if it comes to loss, how to not to lose your entire deposit.
To achieve such goals, there are special Capital Management Methods (money management):
Capital management deficiency.
Most traders, when opening a position, don’t calculate the amount of funds that are being used, nor estimate potential earnings, or calculate potential loss. This is one tactic, but if the capital is not very big to begin with, after several unlucky deals, it will completely disappear.
When opening several positions on the Forex market with different tools, a trader can make great earnings, for example EURUSD and EURGBP, especially if the price goes in the right direction. But the earnings, as well as the losses, can be considerable.
Depending on the amount of funds available, a trader decides how much can be put to risk when opening one or another position. The trader then does not exceed this self-set amount when making deals.
Fixed capital interest rate
This method is like the previous one but with one small difference, the trader determines the capital interest rate, but not the amount.
The correspondence between profits and losses
It is necessary to track statistics yourself for all operations (the amount of losses, profits and the relation between them). When you can see the correspondence/correlation between them, you can then apply what you have learned to your trading.
Intersection of the capital curve moving average
Most people are acquainted with moving averages, which can act like signals for going into the market or leaving it. According to this method, moving averages (long and short) are used to forecast deal results. If a short curve is above the long one, a position can be opened and will be profitable. If however it is under the long one, it is better to wait a bit.
Choosing one or another capital management method for trading on Forexcan help you correctly use your money on the market and help you earn profit. Capital management methods are used for opening positions.