It is always advisable to trade using tight money management when trading the FOREX market due to its high level of dynamic nature. Most time a lot of traders blow up their trading account due to lack of managing their risk well. No strategy is immune to the market, be it technical trading or fundamental trading. You need to always protect your account from the big sharks who want to devour your funds and add it to theirs. Normally after analyzing a potential trade set-up, the first thing that should come to any traders mind is “how much should i be risking from my portfolio”? Some times even the best trade set up can eventually turn out to be a looser. I realized most traders focus more on what they want to make from a trade, which is a wrong mentality.
Every trader has a risk appetite that matches his/her emotion, the better a trader finds this out the better for him/her. This has to deal with mainly individuality. I have met traders that love to risk 10% of their capital per trade without getting emotional irrespective of the outcome of the trade. Personally for me, its way too much because if i have 4 consecutive stop loss, i could get emotional, which could cloud my judgement when trading. I believe trading should be fun and not a do or die task. When you get too emotional with the market, it can affect your blood pressure which will cause havoc to your health. The Market does not care who you are or what you know, it will do what it wants to do any given point in time. All you can do is to do your own part by analyzing potential profitable trades, placing your order, setting your stop loss and also take profit.
The major determinant of your percentage of risk from your trading portfolio is your stop loss for each trade, some traders like using large stop losses for a trade while some prefer looking for trades with small stop losses. Normally a trader who utilizes the 4 hours, daily, weekly and monthly time-frame would be using a bigger stop loss compared to one using the 1, 5, 15, 30 and 1 hour time-frame. Your Stop Loss for each trade will help determine the appropriate lots size or volume required to give you the percentage of risk you are willing to take from your capital.
In order to make money management, an essential component in trading easier, i have attached a free download of a Lots size calculator that would help traders do all the mathematics. All you need to do is to input the value of the number of percentage you want to risk from your trading account and also the number of stop loss you want to use for the trade. When all these parameters are input and attached, this amazing tool provides the appropriate lot size or volume needed to be used to take the trade. However, the calculator only works on a real account, so if you apply it on a demo account it wont function. Take note, the calculator is to be placed in the script menu and used as a script function when installing in the MT4 platform.