If I had to pick one aspect of trading that was most important besides your psychology when it comes to trading success, it would have to be Money Management. After all, it is the only aspect that will determine whether you grow your capital slow or fast as well as protect your account from catastrophic loss. After you have successfully developed the skills and a traders mindset, a good money management strategy is crucial to your success.
What is Money Management?
- Money Management is a strategy for increasing or decreasing the position size to limit risk while achieving the greatest growth possible from a trading account.
- It will determine when to increase or decrease your position size.
- A proper money management strategy addresses both the risk and reward factors on an account.
- Money Management is focused on one thing alone, and that is Account Performance!
New Traders start here!
If you are a new trader we recommend starting with 1% risk per trade. This means that 1R for each trade should be equal to 1% of your account equity. That way no matter what the market is, pips of risk or pip value, 1R will represent 1% of your account.
Once you have achieved several profitable months, you then can choose to be more aggressive and increase the risk to 2% per trade. Also, you might decide that you want to apply a different Money Management Strategy. The choice is yours, but only after you have proven yourself with 1%. Remember, trading is a marathon, not a sprint, and trading small size will greatly help with the psychology aspects of your trading.
We are holding live seminars on Money Management and you will have access to the info here shortly. At this point starting with 1% will get you started, and once you are ready we will be glad to introduce you to other money management strategies which will grow your account more aggressively depending on your risk tolerance.
Position Size Calculator: There are plenty of calculators on the internet. The one we like can be found at myfxbook. To access it click here.
Trader’s Mindset:
Learn how to think in probabilities. There are many contradictions, conflicts and paradoxes in thinking that will cause you to assume that you already do think in probabilities, when you really don’t. You must trust your edge which gives your trades a higher probability of one outcome over another. Your confidence in your edge will result in you developing a winner’s mindset.