The first thing you must do for wonderful trading money management, is to define your trading float. The next thing to do is decide on your maximum loss. This is the maximum quantity of capital you are happy to lose in any one trade. We want to do this before we even open a trade to obey one of the essential guidelines of trading which is keep your losses tiny. Most traders fail because they risk too much. Just as a cricketer needs to remain in so that he will be able to keep on making runs, so above the rest, you need to protect your float so that you can keep on trading.
It may seem pointlessly defeatist to scrupulously consider the chance of losing before you begin trading, but it is really important to take a defensive position. Accept the incontrovertible fact that losing is part, but not all, of trading, and do not get upset about your losing trades. A clear head is necessary. Becoming emotionally attached to your trades should not play any role in the scenario.
What’s the maximum loss you need to accept which is one good money management strategy? When you buy Metastock, you should consider that once you begin using such tools. There is a well-known rule among traders called the ’2% rule.’ This indicates that you should never risk more than 2% on any one trade. Many traders think that even this is far too high. For most they only ever risk 0.25% to 1%.
Let us consider an example. If I had a trading float of $40,000, applying the 2 percent rule, a maximum loss would be $800 on any one trade. Only the extremely doubtful event of suffering fifty losses in a row would wipe out my entire float. In precise fact, more losses than that will be wanted to wipe out the entire float, because, when implemented correctly, the 2 percent is calculated on the existing float size, not the first float size.
Let me explain. As stated in the above example, 2% of $40,000 is $800. If I experienced a loss to start off, my float would be reduced to $39,200. I would then use the figure of 2% of $39,200 as the maximum loss for my next position. Two percent of $39,200 is $196. So with every fall in equity, the maximum loss falls too.
Being such a little share of the trading float makes it far easier to recover the amount which has been lost.
Good trading money management is tough to maintain with a minute float. Using something like a Metastock Pro can be useful. About $10,000 as a minimum is what is required to start to trade. If you have a smaller float than this, you might need to accept a higher risk.
Setting a maximum loss is what you want to endure a chain of losses. Most folks get scared when they endure many losses and wish to get out. But the aim of the game is to stay in the market, so that when things turn around you are there to take advantage. When the market turns around you’ll be cashed up and in a position to exploit this favorable situation.
It may seem pointlessly defeatist to scrupulously consider the chance of losing before you begin trading, but it is really important to take a defensive position. Accept the incontrovertible fact that losing is part, but not all, of trading, and do not get upset about your losing trades. A clear head is necessary. Becoming emotionally attached to your trades should not play any role in the scenario.
What’s the maximum loss you need to accept which is one good money management strategy? When you buy Metastock, you should consider that once you begin using such tools. There is a well-known rule among traders called the ’2% rule.’ This indicates that you should never risk more than 2% on any one trade. Many traders think that even this is far too high. For most they only ever risk 0.25% to 1%.
Let us consider an example. If I had a trading float of $40,000, applying the 2 percent rule, a maximum loss would be $800 on any one trade. Only the extremely doubtful event of suffering fifty losses in a row would wipe out my entire float. In precise fact, more losses than that will be wanted to wipe out the entire float, because, when implemented correctly, the 2 percent is calculated on the existing float size, not the first float size.
Let me explain. As stated in the above example, 2% of $40,000 is $800. If I experienced a loss to start off, my float would be reduced to $39,200. I would then use the figure of 2% of $39,200 as the maximum loss for my next position. Two percent of $39,200 is $196. So with every fall in equity, the maximum loss falls too.
Being such a little share of the trading float makes it far easier to recover the amount which has been lost.
Good trading money management is tough to maintain with a minute float. Using something like a Metastock Pro can be useful. About $10,000 as a minimum is what is required to start to trade. If you have a smaller float than this, you might need to accept a higher risk.
Setting a maximum loss is what you want to endure a chain of losses. Most folks get scared when they endure many losses and wish to get out. But the aim of the game is to stay in the market, so that when things turn around you are there to take advantage. When the market turns around you’ll be cashed up and in a position to exploit this favorable situation.
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