Quick and Dirty Way to Money Management in Forex Trading

Home / How To / Quick and Dirty Way to Money Management in Forex Trading

With reference to the forex trading strategies article, you’ll need to ensure that your trading account has sufficient funds to withstand the price fluctuation. There are plenty of resources that give a detailed illustration of this topic. I won’t go into details here.

However, I like to keep things simple when it comes to trading. So, I am going to share with you a quick and dirty way to calculate your account integrity. Its a method that I often use.

I have to state though that this is NOT a way to calculate stop loss. In layman terms, this is about how much money you need in your account in order to start trading.

Let me use AUD/USD as an example. Assume that you are a scalper and your favorite trading time frame is M15 and M5.

1) Go to H1 time frame on your chart

2) Each vertical dotted line in this time frame represents 1 day and there are 24 candlestick in a day.

3) In your MT4 trading platform, select crosshair

Crosshair

4) Go to the highest candle in your H1 chart and drag it to the lowest point.

crosshair demo

You will notice the number like this 15 / 105 / 1.0148

15 over here means, 15 candlesticks

105 represent pips – this is what I am interested to know

1.10148 is the price

5) Do the same thing for 3-5 trading days. My pip calculation may not be exact. I just want to gauge the average movement for the week.

crosshair pip counting

6) Looking at the price action movement for the past few days, the biggest range is 117 pips and the least is 67 pips. Since I am trading $1 per pip, I need to ensure that my account has at least $117

7) If your trading account has $120, you are good to go and trade the M15 and M5 time frame.

You can apply the same method in H4 and D1 time frame. Try it out.