When you take two pros and trade in the opposite direction of each other, both traders will wind up making money regardless of seeming contradiction of the premise. What is different? What is the most crucial aspect that separates the seasoned traders from amateurs? The answer to this question is money management. Like dieting, money management is something, which many traders pay lip service to, however some practice in an actual life. The reason is very simple just like eating healthy and stay fit. Money management seems like a burden and unpleasant activity.

It forces Forex traders to continuously monitor their positions as well as to make necessary loss and some people like to do that. Forex trading books are littered with stories of traders, who are losing one, two and even five years worth f gains in a single trade gone awfully wrong.  The runway loss is a result of sloppy money management, with no tough stops and lots of average downs into the longs as well as average ups into the shorts. The runway loss is because of the loss of discipline.

Many traders start their trading business, whether consciously or subconsciously visualizing the big one. The one trade, which will male them millions and let them to stop working young and live carefree for the rest of their lives. This fantasy in Forex trading is further toughened by the folklore of the markets. Traders can evade the fate by controlling their risks via stop losses. The fact is that some traders have the discipline to practice this trading method constantly.

Usually there are two ways or practicing successful money management. A Forex trader can tale several small stops as well as try to harvest gains from some big winning trader or traders can chose to go for several small squirrel-like profits and take infrequent but big stops in the hope that several small gains will outweigh some big losses. The first method can generate several minor instances of psychological pain; however it can produce some major ecstasy moments. Whereas, the second trading strategy provides several minor instances of joy at the expense of experiencing a small number of spiteful psychological hits.

With this wide-stop approach, it is common to lose a month’s worth of gains in 1 or 2 trades. The method, you choose depends on your personality. It is a significant part of the discovery process for each trader. One of the great benefits of Forex market is that it can accommodate both the trading styles equally without any extra cost to the retail traders. Since the Forex market is the spread based market, the cost of each transaction is same, regardless of the side of trader’s position. If you are ready to trade with a solemn approach to money management as well as the proper amount of capital is allocated to your account, there are four kinds of stops that you should consider.