The income and free time you can gain by trading forex are real. However, even experienced forex traders fall into traps that make them lose money. Trading in a ‘mechanical’ way is the goal of every trader, and helps you avoid most or all of the major trading mistakes.
The easiest way to trade mechanically is to use an automated trading system. A good automated system effectively manages trading capital, follows a set of entry and exit rules, and executes the trades flawlessly. Investing in a good automated trading system will put you ahead trading forex providing the time and money to do the things you really want to do.
Protect your trading capital
The number one reason traders lose money is poor money management. Or even worse, some traders use no money management at all! The size of your trades should be an integral part of any good trading system.
Using a fixed percentage to risk on each trade is a simple, well-studied, and very successful money management strategy. Risking 2% of trading capital on a trade is generally accepted trade size. For example, if your trading account is $10,000, your maximum loss on any one trade would be $200. As your capital increases, you would increase the maximum loss on a trade. Assume your trading capital has increased to $15,000. At this point, your maximum loss per trade would be $150. Easy, right?
A trading system should manage the ‘risk percentage’ based on win/loss percentage, the size of the average win compared to the average loss, and other unique system characteristics. There are no hard and fast rules, but generally, you could raise the risk percentage with a higher win/loss percentage and/or a higher average winning trade to average losing trade.
While the system should manage trade size based on its unique trade characteristics, you maximum trade loss should match your personal comfort level. A good system should reduce your stress not increase it.
SOURCE: http://www.forex-systems-truth.com/articles/article-why-use-an-automated-forex-system.shtml
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