Money Management and leverage, stop losses and targets

This is one of the most important and most overlooked parts of trading. Many traders take huge risks with their capital in the hope that they will “get rich quickly” or recover previous losses with one good trade. We would like to suggest some simple guidelines for managing your trading account with our G7 system, which will help you to reduce risk and maximize returns. There is lots of additional information on money management on The Traders Club website, in the video library and other sections of the site.

1. Never leverage more than 5:1

· This means that for every dollar in your account, you should not trade more than 5 dollars per trade positions. For example, if your account size is $5000, you should trade no more than $25000 per position. This is 2.5 mini lots (a mini lot is worth $10,000)

· We prefer to leverage even lower than 5:1 with 1:1 – 2:1 being optimal.

2. Never risk more than 2% of your account on 1 trade.

· This is easily calculated. If the trade you want to enter requires a 40 pip stop loss for example, the risk to your account if stopped out is 40 pips x leverage/100%. In this case, if your leverage is 5:1

then the risk would be 40x5/100 = 2%. If the stop loss is higher, the leverage would have to be reduced.

3. Always aim for a 2:1 reward/risk ratio in your trades.

· If you are prepared to risk say 40 pips on a trade, ensure that the potential target for the trade is at least 80 pips. If you are prepared to risk 50 pips, make sure you have a possible target of 100 pips, and so on. Try to always aim for twice as much as you risk. If you stick to these simple rules, you should be able to weather the storms and have a long lasting and relatively stress free Forex career!