A Teen Trader is an educational Site Only. Risk what you can afford to lose.DEFINITION– Money Management is a crucial element of trading the financial markets especially in times of volatility. It is a defensive concept that keeps you in funds so you can trade another day and underpins profitable performance. On a basic level it tells you if you have enough new money to trade additional positions.
What is it?Money management is simply, in my terms, using the SAME percent risk on every single trade. NOT the same pip stop loss, JUST % risk. Whether that is 1%, 5%, or 20%. DO THAT ON EVERY SINGLE TRADE.
Why do we use it?We use money management for one simple reason. TO KEEP OUR MONEY! How do we succeed in trading? We take more than we give back, we steal more than is stolen from us. Money management is the key driving factor that majority of retail traders do not comprehend.
Ok, How do we do this?It is a very simple concept. Rather than placing a 10 pip stop loss on every trade, we rather map out our zones and wait for proper confirmations etc. We then will enter after our proper confirm, place our stop losses BELOW our zones, so that way the only way for us to lose is to be absolutely wrong. Rather than get stopped out on a simple pull back or wick. Another thing to do is ALWAYS use the same % risk, i used to say risk 3-5% but now i strictly risk 5% a trade. Risking the same percent allows you to properly manage losses. ex. (lets assume your win/loss ration is 75%) your equity curve over a course of 25 trades. Should look something like so
“But My risk reward is great so why should i use Money management, i use risk management.”They go hand in hand. You cant win trades if you are risking 5% and taking profit at 1% gain, its very difficult.
THE DON’TsDON’T EVER risk 10% on a trade, lose, then risk 1% and win that trade, then risk 10% again because you think you found “consistency” ALWAYS use the same percent. “well ATT, sometimes i want to use 1% and some times i want to use 5%, it depends on the set up” NOOOOOO, if you aren’t willing to risk your perfect on a given trade, you are not prepared enough with that set up, or confident enough with that set up to take it. Don’t take the trade. DON’T EVER say you must have a 10 pip stop loss, just not logical. Don’t Ever think that positive pips =positive money. i can be -90 pips and make money. how? Lose a trade risking 5% on -100 pips. Then winning a trade with 10 pips gaining 10% or 4.5% total growth for the day.
- Risk a fixed amount on every trade
- Don’t Take a trade if you are unsure
- Place stop losses above zones in which you MUST be wrong if its hit
- You still must have good risk reward (1:1+) to exponentially grow account
- Think Percent and money. not Pips
Money Management Video here!!!