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3 Fatal Errors in Money Management Setup to Avoid

In the world of forex trading, money management is a foundation that cannot be overlooked. Indeed, your success as a trader can depend on how well you manage your funds. However, there are three fatal errors that are often committed and must be avoided in order to effectively manage your trading funds.

1. Falling into Target Traps 

Have you ever set specific profit targets in forex trading? Setting targets is indeed good, but being too focused on them can be dangerous. Some amateur traders often set targets such as a percentage of profit in a month or a certain amount of profit in a number of trades. However, the problem lies in the uncertainty of trading. Price movements cannot be predicted with certainty as they are influenced by various technical and fundamental factors. Following these targets often leads traders to overtrade or violate established trading rules. Instead, it's better to evaluate your trading performance at the end of a certain period without setting rigid targets. This way, you can rectify mistakes and improve your trading performance without succumbing to the pressure of reaching targets.

2. Relying on Pips Units 

Pips are often a common topic in the world of forex trading. However, overly relying on pips units in money management can be misleading. Profit and loss cannot be accurately measured solely in pips units as the actual value depends on the size of your trades. Instead, you should calculate profit and loss directly in Dollar units to understand risk and reward more accurately. This allows you to take into account trade sizes and set Risk/Reward Ratios more precisely. Using Dollar units also helps you to implement money management rules such as the 1% risk rule more effectively.

3. Not Adjusting to Capital 

When choosing the size of your trading lot, you should consider the size of your capital. Using lot sizes that are not suitable for your capital size can lead to uncontrolled risks. Make sure to use lot sizes that are appropriate for your capital capacity so that you can maintain sufficient fund resilience. 

In conclusion, avoid the above errors when setting up your money management. Prioritize discipline and avoid rigid targets. Always remember to adjust your money management to market conditions and your capital capacity. By avoiding these errors, you can increase your chances of success in forex trading.

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