Trade money management

Here come the non-glamorous hard working nuts and bolts of trading, trade money management but none the less important.

How to manage your risk;

You see it does not matter how perfect you think your strategy is at some point in time it is going to go wrong. "Not mine" you might be saying to yourself. You might think that you have the perfect system that no one has ever thought of before. You might have back tested it till the cows come home and traded a demo account for months. It works, it works, and it works! Oh and by the way you might think it's new but you can bet your bottom dollar somebody somewhere has thought of it before.

So then you start live with your own hard earned cash...

At first all looks great but then some sad day it doesn't. It all goes wrong and that last trade was enough to wipe out all your previous gains and then some.

If you do not have your trade money management in place you might win 9 out of 10 trades but the 10th trade will lose you more than the previous 9 winning trades. I see it happen all to many times.

There are three things you need to be thinking about and we will be covering them all here soon.

1. What happens when my strategy goes wrong? Read our article on why we think you should always use a stop order. You will be amassed at how protecting your capital will help improve your profitability and make for a more successful and fulfilling trading career.

2. Risk-Reward ratio, is the trade worth making? Here we take a look at why getting your risk-reward ratio right will not only help protect your capital now, but it will also help make you a profitable trader in the long term.

3. How much of my overall account should I trade? Let's take a look at position sizing which is the simple way to calculate the amount in percentage of your account that you should be aiming to risk on any single trade.

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