Money Management Tips
Money management is one of the most important aspects of trading if not the most important one. Even the best trading strategies out there cannot flourish when there is poor money management. In this article, I will give traders tips on how to get better risk management as well as reward projections that enhance their growth as traders.
Think In Terms Of Percentage
Calculating your risk and reward in terms of percentage is a great money management tool as it tells you the complete picture of what you are actually doing rather than calculating in terms of dollars. I have seen this trend of traders who are already profitable but do not recognise it and end up over-leveraging their accounts hence end up blowing when in fact they could have better equity curves had they known. Let us say for instance there are many people who are not happy with making $50 dollars profit a month from a $100 dollar account. THIS IS 50% FOR CHRIST’S SAKE!!!! They should actually be celebrating. If you can do it consistently and end up with a $10 000 account and make $5 000 a month that is when you will appreciate the 50 percent.
Let Compounding Do Its Magic
Compounding Interest is a subject we all did in high school but very few people really understand it. Very few people do apply it in real life and benefit from its principles. If your $100 account turns into a $200 dollar account through your trading competence you do not need to rush to withdraw your account and go back to your $100 dollar position. Instead, you can still target the same percentages you were targeting and hence get bigger amounts dollar-wise for the same work and the same pips you were having before. If you do it well and strategically you can easily get 15X on your account every year. It’s not that significant if you start with $100 in the first year but in the second year and the third year, the profits become insane.
Predetermine Your RR Before Executing Trades
This overlaps into trade management but it is also vital for you to have a great money management system. Mental stops and take profits are never a great idea unless of course you have been in the markets for a decade or more and know your trades. But generally mental stops are only a way to end up straying away from your money management system as you end up risking more than you should. This will only work against you cause in the cases where the percentage you end up losing is way more than the one you intended and it pains you end up in revenge mode. The market on the other hand has emotions tax and you will definitely lose your money if you trade with emotions