Proper Administration Of Money!

Discussion in 'General Trading Discussion' started by TraderAnalyst, Jun 25, 2019.

  1. TraderAnalyst

    TraderAnalyst Senior Investor

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    Yes this is a must desired skill when you enter the world of trading. If you know how to handle money and try to understand the behavior of the market, half the battle is won. For the rest if you are watchful , you can succeed as a trader!
     
  2. J_C_Anderson

    J_C_Anderson Senior Investor

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    Risk and money management rules are extremely important for each trader. They are closely related to the trading straregy and should fit one another. Sometimes traders underestimate the value of management rules and their impact on trading perfromance. Quite foten newbie traders focus on such things like proper entrance point or indicators, paying no attention to building proper money management approach. At the same time, even great trading idea would fail without being supported by appropriate risk management. The core element of risk management is the risk-reward ratio. According to it, trader should risk with the amount of money lower than he would earn in case if the trade would be winning. For example, in case if risk-reward ratio is 1:3, one profitable trade would cover the damages caused by three losing trades.If the trader has such ratio, he would be profitable if his accuracy is 50% (meaning that only half of his trades are profitable).
    Money management is very important too. During the development of the strategy the trader should define special rules of calculation of the risk per trade - it should be the same for each trade to be consistent. It is also necessary to define it in accordance with the account size. If risk per trade would be too large, several losing trades in a row could cause substantial damage to the trading balance. For daytraders it is also necessary to define the daily maximum loss and suspend trading after reaching it. Such approach would help to keep control over the risk and avoid huge losses.
     
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