Pay attention here this is the most important area of trading if you get this wrong you cannot be a trader. It won’t work, take my word for I know so don’t even try to not follow proper money management. Why do people insist on doing things that don’t work, I don’t know, If you don’t follow money management you are gambling, in gambling you lose unless you get lucky. Remember we are traders not gamblers.
Money Management is protecting your account, it is that simple protect your account. You protect your account by managing risk. Before you ever make a trade determine the maximum dollar risk and the total % that it is in you account. Let me say that again because that is the most important rule in trading. Before you ever make a trade determine the maximum dollar risk and the total % that it is in you account.
How much Should you Risk?
It can be anywhere from 1 to 5% I personally like 1% because I can still easily make my profit goal of 5% per week. Trading is not get rich quick. It is a slow take profit from the market over time the ones that have patience are the ones that will be successful. However 5% is still low enough that if you follow it you will not wipe out your account. Remember to adjust the risk and figure it out after every trade because after every trade your account balance changes.
This is also where risk to reward helps you if your win 3 times more than your losses than you can lose 50% of the time and still be profitable. That helps grow your bank account by making a larger pip count.
In conclusion, practice proper money management in all your trading activities. If you can master your money management you will be fine because even if you are not the best trader you will still be able to keep trading until you get to be the best trader.
Winner’s Edge Trading, as seen on: