Almost anyone can make few good trades with handsome return, however there are very few can consistently grow equity year over year.
Trading is extremely stressful yet exciting, an effective Money Management would help to protect your capital when the market is all against you.
Capital is the bread and butter for a trader, without that there is no way to make money in the market
Stay In The Game ...
Money Management is a technique employed at making money, inclusive of capital budgeting, trading performance review, mental readiness and emotional control.
Apart from trading strategies and knowledge, Money Management is equally important for a trader to stay in the game as long as possible.
The methods to stay in the game are :
- LIMIT SIZE ON EACH TRADE(5% RULE)
- Always trade with 5% of your total capital, that would translate into more than 20 trades.
- Amount for each trade has to be adjusted accordingly to your latest capital.
- PROFIT TAKING / STOP LOSS
- Establish a support and resistance line based on technical analysis.
- Take profit @ resistance and stop loss @ support
- STOP ON LOSING STREAKS (15% RULE)
- There is always a low point for a trader, regardless of their level of skills.
- As soon as your capital dip by 15% after few unsuccessful trades, STOP TRADING.
- Take a rest for few days -> perform postmortem for unsuccessful trades -> come back strongly
- RIDING ON WINNING STREAKS
- Don't stop when you start to build up momentum
- Always stick to the 5% rule no matter what.
The beauty of 5% rule is it will automatically reduce your trade size during losing streaks and vice versa, you will make bigger trade when you are doing well and smaller trade when you are not.
Key Takeaway ...
Money Management will keep you from making profits on a whole bunch of smaller trades and then giving it all back on one bad trade.
Happy Trading ... =)
