NORTH PORT, Fla., Oct. 15, 2013 /PRNewswire/ -- Forex Peace Army President Dmitri Chavkerov advises traders to trade consistent amount of money in order to achieve consistent trading results. Forex trading is a highly volatile area and it is important to make use of the right techniques and methods in order to stay in the game. The general consensus amongst experts in the field is that traders needs to maintain a vigilant stand over the market and should employ the right methods that are capable of bringing them good returns.
"Take a note in the journal how much time you spent on watching each economic report, which one gave no trade, which gave a winning trade, and which gave a losing trade, and how much you won or lost. You need to trade with consistent amount of money, so that the monetary results of each trade are consistent," says Dmitri Chavkerov, CEO of Forex Peace Army.
Dmitri Chavkerov is a leader in the forex trading arena who has been busting many unreasonable forex trading myths through his website Forex Peace Army. Forex Peace Army is a well-known online portal providing useful and reliable information on forex trading.
Dmitri Chavkerov has spent several valuable years researching on the various techniques and methods and understands the nuances of successful forex trading. Now he wants to impart his knowledge on forex trading to a large audience so that everyone will benefit out of it. He suggests traders to use either of the two powerful money management approaches, linear money management and exponential money management.
"You can either use linear money management approach or exponential money management approach. We can certainly apply this most powerful force to trading forex. There are two ways you can grow your money in forex trading. The first is called linear money management. The second is called geometric money management," says Dmitri Chavkerov of Forex Peace Army.
"As for the case of linear money management, let's say you have a system that gives you 60% winners and 40% losers. Let's say you have a $10,000 account, and you decide to use this trading system to trade EUR/USD. Let's say your stop/loss is 50 pips, and your take/profit is 50 pips. Let's say your risk is 2.5% on each trade. So you put 50,000 on each trade. This way each pip is equal to $5, so if you win, your account goes up by $5x50=$250, and if you lose, your account goes down by $5x50=-$250. You decide to put 50,000 on each trade, until you double the account. So until your account is doubled to $20,000, you will be putting 50,000 on each trade, and be either making $250 or losing -$250. This is an example of linear money management.
"And in the case of geometric money management, let's say you have a $10,000 account, and you again decide to use the same 60/40 trading system to trade EUR/USD. Let's say your stop/loss is 50 pips, and your take/profit is 50 pips. Let's say your risk is 2.5% on each trade. So you put 50,000 on each trade. This way each pip is equal to $5, so if you win, your account goes up by $5x50=$250, and if you lose, your account goes down by $5x50=-$250. This time you do something different. Instead of putting 50,000 on each trade, you put 5 times of your actual balance on each trade."
Though both methods are powerful, geometric money management has a slight edge over the linear money management system. Forex Peace Army's Dmitri Chavkerov comes up with an explanation to his stand as to why exponential money management is better.
"Many believe that the linear money management seems more logical, because if you lost one trade, and then won one trade, you would still have $10,000 left, but with geometric money management, you only have $9,993.75 left. This is correct, but only if 50% of your trades are winners, and the other 50% of your trades are losers. However, such scenario is highly unlikely in the real world. Most of the time, you will either have more losers than winners, or more winners than losers. In both cases, the geometric money management will work much better."
According to Dmitri Chavkerov, it serves best to make use of geometrical money management approach. This way, if a trader's system is overall profitable, the trader will double the account much quicker. If the system is overall not profitable, it will take much longer time to wipe out money in the account.
SOURCE Forex Peace Army