Gold Money Management Methods
How to Calculate Risk Management Gold
In any business, in order to make a gold profit one must learn how to manage risks. To make gold profits in trading gold you need to learn about the various gold money management strategies discussed on this learn trading gold tutorial web site.
When it comes to gold trading, the risks to be managed are potential gold losses. Using gold risk management rules will not only protect your gold trading account but also make you profitable in long run.
What's DrawDown in XAUUSD Trading?
As gold traders the number one risk in trading xauusd trading is known as draw down - this is the amount of money you have lost in your xauusd trading account on a single xauusd trade transaction.
If you have $10,000 gold trading capital & you make a gold loss in a single gold trade of $500, then your gold draw-down is $500 divided by $10,000 which is 5% xauusd trading draw down.
What is Maximum XAUUSD Trading Draw Down?
This is the total amount of money you have lost in your xauusd trading account before you begin making profitable xauusd trades. For examples if you have $10,000 in trading gold capital and make 5 consecutive losing gold trades with a total of $1,500 gold loss before making 10 winning xauusd trades with a total of $4,000 gold profit. Then the gold drawdown is $1,500 divided by $10,000, which is 15% maximum xauusd trading draw down.
Gold Draw Down is $442.82 (4.40%)
Maximum Gold Draw Down is $1,499.39 (13.56 %)
To learn how to generate the above in trading gold reports using MetaTrader 4 gold platform: Generate Gold Trading Reports on MT4 Guide - Gold Trading Money Management System PDF - Gold Risk Management Excel Spreadsheet
How to Calculate Risk Management Gold
The in trading gold examples illustrated and described below shows the difference between risking a small percent of your gold trading capital compared to risking a higher percent. Good How to Calculate Risk Management Gold principles requires you as a trader not to risk more than 2% of your total gold account equity on any one single xauusd trade transaction.
Gold Percentage Risk Method
2% & 10% Gold Trading Money Management Rule - How to Calculate Risk Management Gold
There's a big difference between risking 2% of your gold trading account equity compared to risking 10% of your equity on a single xauusd trade transaction.
If you happened to go through a losing gold streak & lost only 20 xauusd trades in a row, you would have gone from beginning gold account balance of $50,000 to having only $6,750 left in your xauusd account if you risked 10% on each gold trade. You would have lost over 87.5% of your gold trading account equity.
However, if you risked only 2% you would have still had $34,055 in your gold trading account which is only a 32 % gold loss of your total gold trading account equity. This is why it is best to use the 2% risk management strategy in trading gold.
The difference between risking 2 % and 10 % on a single gold trade is that if you risked 2 % you would still have $34,055 in your gold trading account after 20 losing trades.
However, if you risked 10% you would only have $32,805 in your gold trading account after only 5 losing gold trades that's less than what you would have in your xauusd account if you risked only 2% of your xauusd trading account & lost all 20 gold trade transactions.
The point is that you want to set up your How to Calculate Risk Management Gold rules so that when you do have a gold loss making period, you will still have enough in trading gold capital to trade next time.
If you lost 87.5% of your in trading gold capital you would have to make 640% gold profit to get back to breakeven.
As compared to if you lost 32% of your in trading gold capital you would have to make 47% gold profit to get back to the break-even. To compare it with the gold example 47 % is much easier to break-even than 640% is.
The trading chart below shows what percentage you would have to make in order to get back to break even if you were to lose a certain percentage of your in trading xauusd trading capital.
Concept of Break Even - Gold Trading Money Management System Tutorial
XAUUSD Account Equity and Break Even - Gold Trading Money Management Strategies Methods - Gold Trading Money Management System Tutorial
At 50% xauusd drawdown, one would have to earn 100 % on their invested gold capital - a feat accomplished by less than 5% of all gold traders worldwide - just to breakeven on a gold account with a 50% gold loss.
At 80% gold draw down, one must quadruple their gold trading equity just to bring it back to its original equity. This is what's referred to as to "breakeven" - which means - get back to your original gold trading account balance that you started with.
The more money you lose, the harder it is to make it back to your original gold trading account size.
This is why as a trader you should do everything you can to PROTECT your gold trading account equity. Do not accept to lose more than 2% of your gold account equity on any 1 single xauusd trade transaction.
Gold Money management is about only risking a small percentage of your gold capital in each trade so that you can survive your losing streaks & avoid a large draw down on your xauusd trading account.
In trading gold, traders use gold stop gold loss orders which are put in order to minimize gold losses. Controlling risks in trading gold involves putting a gold trading stop gold loss order after placing an new xauusd trade order.
Effective XAUUSD Risk Management
Effective in trading gold risk management requires controlling all risks in trading gold and a trader should create a money management gold system and a money management in trading gold plan. To be in trading gold or any other business you must make decisions involving some risk. All in trading gold factors should be analyzed to keep risk to a minimum and use the above gold money management tips on this article - Gold Money Management System PDF.
Ask yourself? Some Gold Trading Tips
1. Can the gold risks to your in trading gold activities be identified, what forms do they take? and are these clearly understood and planned for in your in gold trading plan? All the gold risks should be taken care of in your in trading gold plan.
2. Do you grade the trading risks encountered by you when in trading gold in a structured way? - Do you have a money management gold strategy & a in trading gold plan? have you read about this learn in trading gold topic which is well covered explained here on this learn gold website for beginner traders.
3. Do you know maximum potential risk of each exposure for each trade that you place?
4. Are trading decisions made on the basis of reliable & timely gold market data & based on a in trading gold strategy or not? Have you read about in gold trading systems on this learn gold website.
5. Are the gold risks big in relation to the trade turnover of your invested gold capital & what impact could they have on your gold profits margins & your gold trading account margin requirements?
6. Over what trading time periods do the in trading gold risks of your in trading gold activities exist? - Do you hold in trading gold trades longterm or shortterm? what type of gold trader are you?
7. Are the exposures in trading a one off or they are recurring?
8. Do you know about methods in which trading gold risks can be reduced or hedged & what it would cost in terms of gold profit if you did not include these measures to reduce potential gold loss, and what impact would it make to any upside of your gold profit?
9. Have your gold trading money management guidelines been adequately addressed, to ensure that you make and keep your in trading gold profits.
Trading Gold Risk Management & Gold Trading Money Management Methods - Draw Down Gold Trading Risk Management Chart - Draw Down Gold Trading Risk Management Calculator
