Money Management: The Correct Lot Size
Proper Money Management is vital to the trader hoping to grow his account balance. We’re intentionally dealing with a volatile currency here at the end of the day!
So even though every trade we take has all the hallmarks of a “good one,” it’s crucial that we don’t over-leverage our trades. Never enter a trade with more contracts (or “lots” in the Forex lingo) than you can afford. The key concept here is capital preservation and slow-but-steady account growth. Rush system is built on knowledge and long-term predictability. If we ignore these factors and over-extend ourselves, we’d be in fact treating trading like gambling and that’s certainly not the right approach to trading, is it?

Let me stress this: to give ourselves the best chance for sustained account growth, we need to keep under systematic control how many lots we enter our trades with.
Here’s a generally-accepted, and I think very effective rule: never risk more than a 3% of your account size on any given trade. That means that should our trade be stopped out for a loss, the impact on our account won’t be any larger than a very acceptable 3%.
Calculating that 3% figure takes a little math, but it’s not that hard to understand… and better still, I’ve automated the process for you in my custom indicator (once again, there’s plenty of more info about the indicator in the following chapter). But since it’s still worthwhile to understand how it works, let me dig a little bit in detail:
We know from our instructions above how to set the distance between the entry level and the stoploss level. Next, we need to know the value of each pip for one standard lot (100,000 units traded) for that particular cross. Once we know that, we can multiply that dollar amount by the number of pips in from entry level to stoploss. That gives us an idea how much we’d be risking, in dollars, if we trade one standard lot. As long as that result is not more than 3% of our total account balance, the trade is safe. If that result is more than 3%, we’ll need to reduce our lot size.
It sounds more complicated than it is. Let’s look at an example, and you’ll see how simple it really is.
Say we have a $10,000 account and we’re looking to enter a BUY order on GBPUSD at
1.9200. We’ve done our calculations, and we want to place the stoploss at 1.9155, so we’re risking 45 pips in this trade.
The pip value for GBPUSD is $10/pip per standard lot, so if we take the trade with 1 standard lot and our stoploss is hit, we would lose 45 x $10 = $450.
Now, the 3% of our $10,000 account that we’re willing to risk is only $300, which means $450 is more than we can safely risk. So we need to enter this trade with less than 1 standard lot. The appropriate lot size for this trade according to our money management rules should be 300/450 = 0.66 lots.
Again, it’s worth understanding, but part of the beauty of the system is that it’s fully automated! So keep reading because you’re about to learn how I have automated the whole system into my own particular indicator!