Forex Nitty Gritty: Stop Loss And Money Management Lessons For Every Forex Trader
Todd Granthem went over something important on the Daily Forex Video inside the Forex Nitty Gritty Insiders website. (This is the members website that accomplanies the Forex Nitty Gritty video course). I thought this is a very important topic so I wanted to give you a heads up here.
On my Inside Forex Nitty Gritty Blog, I just wrote a post called: Forex Nitty Gritty Daily Video: Patterns On Price Charts And Money Management
This is a very important topic, so I think you should check it out.
Here is a little about the money management concept I talk about…
Forex Nitty Gritty teaches the Simple Trading Method. The Simple Trading Method uses the charts to determine where the stop loss should be. Most proven Forex trading methods determine stop losses using price action.
But what happens when the stop loss is greater than the risk allowed by your money management?
Example…
You have a $1000 account and only want to use 3% for each trade… so you have a max of $30 per trade.
If you are trading 1 mini lot ($1 per pip)… your maximum stop loss can be only 30 pips.
So, what do you do if the chart says you should place your stop loss 100 pips away?
A lot of traders wrongly reduce the stop loss down to 30 pips. But what they should do is reduce the lot size they are trading so they can place the stop loss where it is supposed to be without breaking their money management rules!
The charts determine the stop loss level… not your account balance or risk tolerance.
Anyway, that is what I was taking about on the Inside Forex Nitty Gritty Blog today in reaction to watching the Daily Forex Video. I suggest you check it out, because it is important regardless of the Forex trading system you are using.
Forex Nitty Gritty Risk Reward Ratio
On a related topic, I got an email over the weekend asking about the risk-reward ratio of Forex Nitty Gritty. This is a great question, so I did a blog post about it as well. You can see it here…
Forex Nitty Gritty: What Is The Risk Reward Ratio?
This is a very important topic. Unfortunately, it is a little tricky to figure out unless you are using a trading method that only has one stop loss and price target. In the case of Forex Nitty Gritty… the risk reward starts off good and then gets BETTER as the trade goes on.
Like I said, I wrote an entire post about it, so I won’t go into detail here.
Most of you might not be familiar with Forex Nitty Gritty by Bill Poulos. I thought it is such a great Forex program (especially for beginners), that I started a separate blog to talk about it and my experience trading it. While the topics are specific to Forex Nitty Gritty and the Simple Trading Method… there are lessons like these to be learned by every trader.
I’ll keep you informed when there are more important topic like these I think you should take a look at.
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