Trade Gold Trading

Money Management Styles & Methods in Gold Trading

The best way to practice successful money management in XAUUSD trading is for a gold trader to keep losses lower than the profits they earn when trading. This is called risk : reward ratio.

High Risk: Reward Ratio

This risk: reward ratio method is used to increase the profitability of an investment strategy by trading only when you have the potential to make more than 3 times what you're risking when opening a XAUUSD trade.

If you invest using a high risk reward ratio of 3:1 or more, you significantly increase your chances of becoming profitable in the long run when trading Gold metal. The chart below shows to you how this market concept works:

Gold Trading Money Management Styles & Methods in XAUUSD Gold Trading - Gold Trading Money Management Methods

In the first illustration, you as a trader can see that even if you only won 50% of your Gold trades, you'd still make a profit of $10,000 dollars. Even if your win rate went lower to about 30% you would still end up profitable just as is shown on the second above example.

Just remember that whenever you've got a good risk-reward ratios, your chances of being profitable are greater even if you've got a lower win percent.

Never use a risk: ratio where you as a trader can lose more pips on one trade than you plan to make. It does not make sense to risk $1,000 dollars in order to make only $100 dollars.

Because you have to win 10 times more to make $1,000 back even if you lost only 1 trade.

If you as a Gold trader ONLY lose once you have to give back all your trading profits from the other ten winning trade positions.

This type of investment strategy makes no sense and you will lose in the long term, guaranteed!

% Risk Method

The percentage risk method is a method where you risk the same percentage of your trading account equity balance per every trade.

Percentage risk based method specifies that there will be a certain percentage of your equity balance that is at risk per position. To calculate the percent per every trade, you need to know 2 things, the percentage risk that you've chosen and lot size of an open order so as to calculate where to put the stop loss order. Since the percent% is known, we shall use it to calculate the lot size of the order to be placed in the Market: this is referred to as position size.

Example

If you have an account balance of $50,000 in your trading account and risk percentage is 2 %

Then 2 % is equivalent to $1,000

If three investors buy XAUUSD & the first one is using 100 pips stoploss order, second one is using 200 points stop, third one is using 250 points stop, and their position size will be:

Example 1:

Stop loss = 100 pips

Risk percentage = 2 percentage = $1,000 dollars

100 pips = $1,000

1 point =1,000/100= $10 dollars

Example 2:

Stop loss = 200 pips

2 percentage = $1,000

200 pips = $1,000 dollars

1 point =1,000/200= $5

Example 3:

Stoploss = 250 pips

2 percent% = $1,000 dollars

250 pips = $1,000

1 point =1,000/250= $4 dollars

Example: If a gold trader with $50,000 dollars wants to calculate annual income from his trade strategy

Annual income: If your system has got a win ratio of 70% & your risk:reward is 3:1, and your stop loss is 100 pips and take-profit is 300 pips & every month you make 100 trades trading standard lots, then your maximum annual income will be about:

For one standard XAUUSD lot profit per 1 pip is $1

100 trade transactions*12 months = 1,200 trade transactions

Wins & Profit

70% win: 70 % of 1,200 = 840 profitable trades

840 transactions * 300 pips = 252, 000 pips

252,000 pips = $252,000 dollars

Losses

30 % losses: 30 % of 1200 = 360 losing transactions

360 trade transactions * 100 pips = 36,000 pips

36,000 pips = $36,000

Net Profit = 252,000 - 36,000 = 216,000 pips

Income: 216,000 pips = $216,000

The above is just an example of the amount you'll make that will depend on the risk reward ratio of your Gold trading system along with its win percent% ratio.

Other factors and aspects to consider include:

Maximum Number of Open Position A final point which to consider is the max number of open trade positions - that is the max number of trade positions that you want to be in at any one time. This is another aspect/factor to decide when managing your trading account capital.

If e.g., you choose a 2 % risk management technique per trade position, you may also say choose to be in a max of 5 positions at any given time. If all 4 of those positions close at a loss on the same trading day, then you would have an 8% decrease in your trading equity balance that day.

Invest Sufficient Capital One of the worst mistakes that traders can make is attempting to open a trading account without sufficient capital.

The trader with limited trading capital will be a worried investor, always looking to cap losses beyond the point/level of realistic trading, but will also be often taken out of the transaction before getting any success out of their strategy.

Exercise Discipline Discipline is the most important thing one can master to become profitable when trading gold online. Discipline is your ability to plan your work & work your plan when trading XAUUSD.

It is the ability to give a Gold trade the time to develop without hastily taking yourself out of the market simply because you're uncomfortable with risk. Discipline is also the ability to continue to stick to your trading plan rules even after you've suffered losses. Do your best to cultivate the level of discipline required and needed to be profitable when trading Gold online.

Managing Trade Account Capital Basics

Money management is the foundation of any Gold trading system as it helps investors to get profit trading/transacting on the online spot Gold trading market. It is especially important when transacting in the leveraged online XAUUSD market.

If you want to invest successfully in the online Gold market you should realize that it is very crucial to have an effective trading strategy of money management because you'll be using leverage to open your orders.

The variation between average profits & losses should be strictly calculated, the profit on average should be greater and higher than the trading losses on average, otherwise trading XAUUSD won't yield any profits. In this case an investor has to formulate their own trading rules; success of each person depends on their individual traits. Hence, every investor makes his own trading strategy and formulates their own money management, based on the above guidelines.

When you're placing your XAUUSD trading orders put your stop-losses in order to avoid huge losses. Stop orders also can be used to lock in the profit.

Consider the chance of getting and making profit against loss as 3:1 - this risk to reward ratio should be more favorable on the profit side. Considering these rules & guidelines, you as a trader can use them to improve profitability of your trading strategy & try to develop your own trade strategy which will possibly give you good profits.

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