Money management strategies in forex are very important to be considered before you are trying to enter a position in the forex market as this is, in fact, the key to preserving your forex account and also the key to becoming a profitable forex trader that would let you be able to stay in the market as long as possible and not meet with the Grim Reaper of the market, that is, margin call. Generally, from what I have researched previously there are 3 main money management strategies that I know where you can use and apply it to your forex account, that is:
Straight
The first is straight money management which is my favorite strategy as I apply this to my forex account personally which allows me to stay in the market. This straight money management is very simple as you only have to open the same lot position whenever you take your trade. For example, if you trade EUR/USD pair with a 0.1 standard lot with a 1:2 risk-reward ratio, then, whenever you hit your take profit target or stop loss in the forex market you only have to open with the same size you previously opened for the next trade, which is, 0.1 standard lot.
Straight money management from my point of view is the most effective money management strategy as this can preserve your forex account more than when you use a martingale strategy (which you can see below this). However, if you do not feel like using it or it does not suit your personality, then, you may want to delve more into other money management strategies.
Martingale
Originally, the martingale strategy was used for betting in the casino game whereas Statistics How To explained that martingale was a popular betting strategy that happened in France precisely in the 18th century. However, as time goes by the theory is also used for Forex trading. The main idea of this strategy is that whenever you hit your stop loss in the Forex market, you have to open a new position twice your previous loss position. Take, for example, you trade AUD/NZD with a 0.2 standard lot with 1:1 and you hit your stop loss. Then, for the next trade, you have to open a position with 0.4 lot in order to "recover" your previous loss.
Well, I personally think that this money management would not bring profit in the long term, it just satisfies your short-term psychology. The reason is that the risk-to-reward is not favorable as you risk more than you reap the reward. It is like you are throwing your money away to the market, at least that is what I think about martingale. But if this strategy fits your personality and you can handle "the psychological pressure" from consecutive losses that may incur, then, just forget about what I think and go for it. Best of luck.
Anti-Martingale
After the martingale strategy, there is also the anti-martingale which in my eyes this strategy can be profitable if you have the right calculation and the market conditions favor your trading strategy. Anti-martingale itself according to Kenton (2021) is the reverse martingale where you double up your investment position each time you hit target profit and halve your position if it hits stop loss. For example, you trade AUD/USD with a 0.1 standard lot on a 1:1 risk-to-reward ratio, then for the next trade you open trade with a 0.2 standard lot. However, if you hit stop loss at 0.2 standard lot position, you go back to 0.1 standard lot for your next trade.
In my point of view, this strategy can be very profitable, but you have to be very patient with this anti-martingale strategy as the main idea of this strategy is to add a new position twice your previous position if you hit the target profit and halve your position if you hit stop loss, so it also can wipe out your previous profit that can "shake" your psychological conditions.
Conclusion
To conclude, there are 3 main money management strategies that you can use, that is, straight, martingale, and anti-martingale. There are other strategies as well yet these are the most well-known strategies by many people. I personally use straight money management to preserve my account as I have learned the hard way in the past by using martingale. As for anti-martingale, I had tried that too but it seems it does not fit well with my personality even though it could bring bigger profit. The most important thing is that just because I use the straight money management strategy does not mean that you have to follow my path because you have to choose the 3 main money management strategies that fit your personality.
Written by Andre I.
References
Kenton, Will. 2021. Anti-Martingale System. Retrieved From Investopedia: (Accessed May 22, 2022) https://www.investopedia.com/terms/a/antimartingale.asp
Statistics How To. Martingale: Definition. Retrieved From Statistics How To: (Accessed May 22, 2022) https://www.statisticshowto.com/martingale-definition/#:~:text=The%20word%20martingale%20came%20from,bet%20every%20time%20he%20lost.