9 Golden Rules of Effective Money Management

3 de jan. de 2021

9 Rules of Effective Money Management in Trading



1. Choose the correct position size.
The basic rule is one: don't forget to minimize your risk and correctly calculate position size in every deal.

For example, you can invest all initial capital in one trade. But why? After all, you can never be sure, that particular deal is guaranteed to bring profit. Many professionals use the "Rule of 2% " - when in one position a trader risks no more than 2 percent of him deposit. In this case, if the trade is closed at a loss, you'll only lose a small amount of money.

There is also an alternative approach, where the trader risks a fixed amount of money (for example, $ 5), that he would be comfortable with losing.

2. Don't trade too aggressively
One of the biggest mistakes is too aggressively trading . Even a small series of several losses in a row, with an incorrectly selected position size, can lead to a significant decrease in the size of your deposit.

3. Always set Stop Loss
Placing a Stop Loss order for each trade has practically no drawbacks, only advantages. Very often, traders become emotionally attached to their trades, which can be fatal.

For example, if a trade becomes unprofitable, an emotionally involved trader will not want to close it and will believe, that the price can still turn around and go in the right direction. Setting a stop loss helps overcome this problem. Thanks to the stop order, you can strictly control the ratio of profit and risk. You should always follow this rule, so that money management in trading gives you tangible advantages, and the deposit doesn't melt before our eyes.

This is one of the basic principles of risk control. Certainly not the only one.

4. Be careful with leverage
In the cryptocurrency market, many traders use leverage. It can be useful, but using it can also lead to huge losses.

As long as you rationally sizing your position and not using too high leverage, then you are fine, you are safe.

5. Keep your emotions under control

Capital management in the market full of emotions: from excitement and euphoria to fear and frustration. Try to free your mind of emotions - this will help you make rational decisions. The easiest recipe not to lose money is to take control of your emotions. All wrong trading decisions are usually made under the influence of emotions.


6. Take responsibility for your results (both losses and profits)
How to manage capital? First of all, with full awareness and responsibility. Traders must recognize, that their trades can be both profitable and loss-making. Assuming every transaction will be successful you can be wrong. A realistic trader knows that any result is possible and is ready for it, while accepting at the same time what the market will bring to him.

7. Manage your risk and avoid overtrading

A trader should get into the habit of analyzing all types of risks. You should zvoid overtrading, which is often the case for newbies traders , who don't have a plan. With such an approach, the attempt to stick to effective money management in trading often ends in failure.

8. Set the position size and take profit level
It is a key element of money management in trading. Before trading, a trader must determine:

🪄Position size
🪄Stop loss size
🪄Take profit level

9. Cut losses quickly and let profits grow
According to this money management advice, you should close those trades that lead to losses according to your trading system on time and get the most out of winning trades.

Enjoy your trading journey!

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