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Let me be clear about what I will discuss here in this article. You are not going to get a lesson on where or why to place stops. Or whether you should cut your losses short or let your profits run. You have heard this all before. Any trader that does not have a system is doomed to fail in trading. All successful traders use a system whether he admits it or not. Even a discretionary trader uses a system that he has naturally developed over his trading career. It may not be a written mechanical trading system but he knows where to place stops, when to get out and where to take profits. It is his style of trading but he uses that method over and over.

A discussion on money management is more than just managing your trades. The critical aspects to this subject are how large of a trade should you make, when should you increase your lot size, how much should you increase your lot size, and when should you decrease your lot size. Most automated trading programs I have seen do not have a money management input in its code. Those robots that do just use a simple percent of the funds that is in the account. There are better ways to do this and it can make the difference between a system that makes money and one that doesn't.

Money Management is the most vital component to a successful trading system. You have to have a method that takes the guesswork out of determining what your lot size should be. Having a formula to gauge a trader's aptitude and ability to successfully trade the Forex markets would be a very state-of-the-art math formulas. After a trader's particular style is assessed you would need a program that would apply a type of "artificial intelligence-based" logic to properly measure the amount of lots and trade size needed for each consecutive trade.

If you had a program like this you would not need to change your particular trading style or method. Changing the lot size when you are trading could be all you need to make the difference between a profitable record and a negative record.

A program with this "artificial intelligence-based" logic is going to help traders become more consistent and be able to withstand draw downs and losses for a much longer, extended period of time. Moreover, if your traders are already successful with a proven system, it will ramp up their system to pull even more pips from the market.

Does a program like this exist? Yes there are programs that do this. You can go to my web site to learn more, Forex-Automated-Trading.org. A program like this would be able to transform any EA or any system into a more potentially highly profitable system by just using money management in this way. Automated Forex trading software is not complete without this method.

Matt Madison is a full time trader in Forex. He started trading in 1979 in the Futures Market. In 1980's became a CTA and managed Future accounts. In late 1990's he published Futures trade recommendations. In 2006 he became a full time Forex trader. Latest web site is Forex Automated Trading with focus on automated Forex trading software, with particular attention to lot size management.

By Matt Madison