Money management is one of the essential parts of successful trading. It is very hard to make stable profit, without proper distribution of your money. Especially if you have margin account. We would suggest following some basic principles:
1) Do not trade with more than 30-50% of your capital. Investing or opening positions in access of 80% of your trading account leading to bigger risk and limiting your ability for new trading possibilities. Always remember, market can go up and can go down, and big positions, relatively to your account, putting you at risk. Plus for margin account risk even bigger, due to margin call.
2) Do not stick just to one instrument. Try few of them. It is better small profit, than big loss.
3) Do not get attached to your position. Remember, sometimes it is necessary to close your position with the loss, in order to avoid bigger loss.
4) Do not be greedy. If market reached your profit levels, take it. Do not wait in excitement for more profit.
5) Do take care of your trading account. Do not pay too much spread or commissions.
Overall this is just small basic advices, but very important. Just by following those rules you already on the way to make money in the long run. It is possible to become a millionaire over the night, but most likely it won’t happen. So, slow and strict way is better. Do not rush anywhere, whole life in front of you.
Generally, money management rules are always expressed by numbers. And it should be this way, otherwise would be very difficult to suggest anything. But despite that, we would like to suggest different way, how to determine, what risk every trader should take.
We consider, what every trader is unique and different from each other , with their own emotional response to the market. And actions of those traders, in the same market, at the same time, will be completely different. There is hard to find anything, what would be suitable to all traders. So we suggest to develop your own money management by following those simple rules:
(1) First, every trader must analyse, how she or he reacting to the big jumps of the market. If you do get excited too much, keep your trading positions small.
(2) Second, find out how strong your emotional response to loss or profit. If levels of emotions rising to the sky, again keep your trading positions small.
(3) Third, what do you feel before entering position? Doubt? Fear? Uncertainty?
You already probably understood main point – the higher is your emotional response to the market, the smaller trading positions. So, by analysing yourself, you will find everything you need not just about money management, but and about your trading. Be honest to yourself, lack of honesty will lead you to losses in the long run and event best trading method won't help. Emotions is driving market and winners are always cool.
Our members can always personally ask for help, if they feel that emotions taking over. We are not a website, we are real people, and we came through the same emotions as the new traders experiencing.
