Learn About Trading Money Management
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The first thing you need to do for excellent trading money management, is to define your trading float. The next thing to do is decide on your maximum loss. This is the maximum amount of capital you're willing to lose in any one trade. We need to do this before we even open a trade in order to obey one of the cardinal rules of trading which is keep your losses small. Most traders fail because they risk too much. Just as a cricketer needs to stay in so that he can keep on making runs, so above everything else, you need to protect your float so you can keep on trading. It may seem unnecessarily defeatist to carefully consider the likelihood of losing before you begin trading, but it is important to take a defensive position. Accept the indisputable fact that losing is part, though not all, of trading, and don't get angry about your losing trades. A clear head is necessary. Becoming emotionally attached to your trades should not play any role in the scenario. What is the maximum loss you should accept which is one good money management strategy? When you buy Metastock, you should consider that once you start using such tools. There is a well-known rule among traders called the '2% rule.' This means that you should never risk more than 2% on any one trade. Many traders think that even this is way too high. For many, they only ever risk 0.25% to 1%. Let's consider an example. If I had a trading float of $40,000, applying the two percent rule, a maximum loss would be $800 on any one trade. Only the very doubtful event of suffering fifty losses in a row would wipe out my whole float. In exact fact, more losses than that'd be wanted to wipe out the whole float, because, when implemented correctly, the 2% is calculated on the existing float size, not the original float size. Let me explain. As stated in the example, 2% of $40,000 is $800. If I experienced a loss to start off, my float would be reduced to $39,200. I'd then use the figure of 2 percent of $39,200 as the maximum loss for my next position. 2 % of $39,200 is $196. So with every fall in equity, the maximum loss falls too. Being such a small percentage of the trading float makes it much easier to recover the amount which has been lost. Good trading money management is tough to maintain with a very small float. Using something like a Metastock Pro can be useful. About $10,000 as a minimum is what is needed to begin trading. If you have got a smaller float than this, you could need to accept a greater risk. Setting a maximum loss is what you need to endure a chain of losses. Most folks get scared when they endure many losses and need to get out. But the aim of the game is to remain 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 take advantage of this favourable situation.