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This is one of two tools dedicated to creating and populating forex trading cycles, it provides a logical step-by-step process for creating a solid money management plan for the next trading cycle.

If a trading cycle's set of rules isn't already determined, this tool will help create such rules in five simple steps, and it will gives logical calculated possibilities for that plan, preparing a trader mentally for the possible positive and negative outputs of that trading cycle. Providing an environment able to help with consistent trading is our main goal, and here is where it starts.

This page will cover everything regarding this tool in details, covering the data flow, and the five steps process to create a new money management plan. All screenshots used will show just the part of the tool being explained, a native screenshot for the tool as a whole can be viewed/saved using the link above.


The below illustration details the type of data flow between this tool and other directly connected tools, to see the bigger picture for the whole toolkit's data flow please check this illustration.

Detailed data flow from/to "Step-by-Step" forex money management tool

detailed data flow from/to "Step-by-Step" forex money management tool

When used to create a new money management plan for a forex trading cycle, this tool will be the origin of all the rules used throughout that trading cycle.

The trading cycle's details and calculation rules for checkpoints are sent to "Checkpoints" tool, which then takes control of calculating and populating these rules and thresholds for each new checkpoint till the trading cycle is completed or closed.

Completed money management plans created by the tool can be loaded from "Trading Cycles" history tool, all the five steps will be automatically filled and configured as they were initially created so that an exact replica of that forex trading cycle can be launched.


In-depth explanation for the 5 steps process

There are 5 steps to go through for creating a new money management plan. 1: defining trading balance which will set the total trading balance and the dominant currency structure, 2: defining trading edge which will set the win/loss ratio for checkpoints and reward:risk ratio for individual trades, 3: checkpoints where the total checkpoints count will be set and the probabilities of winning & loosing checkpoints are calculated, 4: risk type where the risk calculation method and per checkpoint thresholds are set, and finally 5: review and activate where the calculated and logical results are displayed for reviewing, before activating the new forex trading cycle.

All the different toolkit's in-depth pages were created through the life span of a single forex trading cycle created using the money management plan demonstrated below.


"Step-by-Step" forex money management tool in-depth: Step 1 - defining trading balance

step 1 - defining trading balance

The first part is to define how much to invest in a forex trading cycle, the balance entered here doesn't have to be the same as the balance in the brokerage account(s). Lets assume a trader have a total balance of 20,000 USD divided on two brokerage accounts, and that trader wants to try a new technical trading method using only 2,000 USD. In such case, 2,000 USD will be entered here as a trading balance and the actual balance with each broker will be entered in two brokers presets. That way, all the money management calculations will be done with respect to the 2,000 USD, while margin calculations and the ability to enter the market will be calculated with respect to the selected brokerage account preset.

Splitting the trading balance from the actual total balance gives options to try new forex trading techniques using a small amount of the actual balance, and keeps the user's focused on the trading cycle itself rather than on complex calculations.

Although we don't recommend such action, trading balance can be set to be more than the actual total balance of the brokerage account(s), for example in case of a bonus given by broker which is very common parctice by forex brokers. Again, we belive that to be a consistent trader, this kind of calculations shouldn't take place.

There are 3 inputs for this step. Dominant currency which can be chosen from a list of 30 currencies(can be custom defined in the tool's settings), the decimal points to use for that currency (Integer, 1, 2, or 3), and finally entering the trading balance to invest in this cycle.

The information panel will show an alert if an error is detected in the entered balance, otherwise it informs that the balance is accepted and will be used.


"Step-by-Step" forex money management tool in-depth: Step 2 - defining trading edge

step 2 - defining trading edge

The second step is the the most important step for creating a good money management plan. In this step, the edge over the market will be defined as a result of both the win/loss and reward:risk ratios provided.

Unlike all the other values used to create a plan, those two values should never be experimented with, they must reflect actual forex trading performance. The bigger the sample those values are extracted from, the more reliable and solid the money management plan will be.

Win/Loss ratio will be applied to the total count of defined checkpoints. Since a single checkpoint can be used for either representing a single trade or multiple trades, thus the win/loss ratio entered should reflect the checkpoint's type that will be used.

If a single checkpoint will represent a single trade, then the win/loss ratio to enter should be the absolute win/loss ratio of the sampled trades. While if a single checkpoint will represent multipe trades (for example, a checkpoint will represent any number of trades completed in a week), then the win/loss ratio to enter should be sampled from previous weeks of forex trading.

Reward:Risk ratio will be default value applied to each single trade being calculated by the different trading tools.

The information panel will display errors that might occur while entering values, and will show the trading edge's strength (1 to 1.999 represents normal edge, greater than 2.000 represents strong edge).


"Step-by-Step" forex money management tool in-depth: Step 3 - setting checkpoints

step 3 - setting checkpoints

The third step is to set the total count of checkpoints for the forex trading cycle and the favored probability to choose when a fractional checkpoint is generated, we talked breifly about checkpoints in the previous steps and now we will go into more details explaining the different ways to use checkpoints for trading cycle.

A forex trading cycle is a way for a trader to set a goal and evaluate his performance when that cycle is completed. During that trading cycle, there should be a way to self-evaluate while trading towards that cycle's goal, we introduced checkpoints for that sole purpose

That self-evaluation depends on the trading style, either after each trade which is most likely for medium to long-term traders, or time-based evaluation (for example, a trading session or week) which is used more by scalpers and short-term traders. Checkpoints were introduced to cover the needs of both trading styles, a checkpoint can be closed right after a trade or left opened to continue trading as much needed before closing that checkpoint. Both trading styles can be used within a single trading cycle, we used that approach for the trading cycle used to demonstrate the different tools of the kit.

The second input for this step is choosing a favored probability in case a fractional checkpoint is generated. In our example, when win/loss ratio is applied to the total checkpoints, the winning checkpoints were calculated as 19.25 while loosing checkpoints were calculated as 13.75. If the loss probability is chosen as favored, calculation will be 19 wins and 14 losses, while if the win probability is chosen as favored, calculation will be 20 wins and 13 losses, and finally, choosing "don't change" will leave the calculated probability as it is. We think that the best way to approach this is to favor either win or loss if a checkpoint is used to represent single trades, or leave the probability as it is if a checkpoint is used to represent multiple trades.

The information panel will display errors that might occure while entering values, and will inform with the original calculated probabilites and the final probabilites as per the selected favored probability.


"Step-by-Step" forex money management tool in-depth: step 4 - Setting risk type & anchor

step 4 - setting risk type & anchor

The fourth step is to define how risk will be handled throughout the forex trading cycle, this will be done by choosing risk type and setting risk anchor. Those settings will affect calculations done at the beginning of each new checkpoint.

Risk type can either be "fixed percentage" or "fixed cash", they both have their cons and pros and choosing either type is totally depends on trading style. Mathematically speaking, using "fixed percentage" will result in faster pace of winning or loosing when current trading balance is larger than the trading balance when the trading cycle began, and slower pace of winning or loosing when current trading balance is less than the trading balance when the trading cycle began, while using "fixed cash" will result in a fixed pace of winning or loosing at all times throughout the trading cycle.

Risk anchor will be set next by choosing "sustainable loss" or "target profit". The chosen anchor type will be used to calculate reward:risk thresholds for each new checkpoint, and the amount entered for that anchor will be set in percentage or in cash according to risk type chosen.

The information panel will display errors that might occure while entering values.


"Step-by-Step" forex money management tool in-depth: Step 5 - review and activate

step 5 - review and activate

The final step is to review the concluded cycle's output generated by the tool, and decide if that plan is safe & achievable or not. The details provided here can greatly help with that decision, and help with further fine-tuning the plan by changing entries in any of the previous steps. However, we emphasize on the importance of using win/loss and reward:risk representing actual forex trading performance, they are the only two components that shouldn't be manipulated or experimented with to fine-tune a real money management plan.

"cycle's target" and "target balance" are calculated according to the final win/loss probabilites for checkpoints and the final reward:risk settings. "CP benchmark" is calculated according to checkpoints count and cycle's target, and finally, "max win streak" & "max loss streak" are calculated according to checkpoints count and risk:reward settings.

The final step is to activate the money management plan and start a fresh forex trading cycle.