Money Management is a set of rules and techniques designed to minimize risks and maximize profits. A proper business strategy is only 50% of success, the other half depends on the money management the trader uses. Utilize the following guidelines in your trading, and you’ll achieve the best possible results in trading.
Risk not exceeding 3%
Maintaining clear control of the level of risk in each transaction is the first and most fundamental rule of money management. Regardless of how proven or profitable the trading system is, if there are changes in the nature of price movement, oversized transactions can lead to large losses. And if the cost of a transaction doesn’t exceed 3% of the size of the trading account, you can easily overcome a losing period and quickly make up for your losses in the future.
Limiting potential losses for the day
The second rule will help you reduce losses. Simply limit their size for one day. The fact is that trading strategies used by traders cannot operate equally profitably at all times of the day and on all days of the week. If the dynamics of price movement have changed, and you have begun to receive losses, it makes sense to stop trading until the next day. Losses over one day should not exceed 15% of the trading account.
Don’t try to win it back
Never try to win it back. The manifestation of emotions during trading is a certain path to losing money. Particularly beginning traders often fall into the trap of emotions. Proceed calmly and confidently in accordance with your trading strategy.
Increase the volume of transactions in proportion to the growth of your account
If you are using an effective trading strategy and properly managing your capital, the size of your trading account will be actively growing. You can increase the size of your trading operations in proportion to the growth of your account. This will help your capital grow even faster. Do this slowly and don’t forget about the rules mentioned above.