Money management is the single most neglected and overlooked key in the trading business.
In my experience, money management is by far the most essential element to actually making significant money from the markets!
Everyone spends such an enormous amount of effort, trying to find ways to
optimize entry into the markets, or develop systems, indicators and strategies, but very few ever spend time learning how to control their risk and actually manage it to their favor.
Everyone wants to know how to find the exact top or the exact bottom of a price move and get in at the most opportune moment.
During the Start of my trading career I also ignored Money Management but thanks to my “GURU” Who trained me and showed me the importance of Money management You would be wise to do the same!
Money management is absolutely crucial in ordinary everyday life, so why would you think trading or any other business or profession would operate under different criteria?
Anil Ambani a Classic Case of Business going in Doldrums From High of 55 Billion USD in 2008 to less than 300 Million in almost 10 years show how wrong money management can lead to fall of Super Rich and Powerful !!
To apply proper money management skills to each and every potential trade entry, we must understand all of the following criteria:
- Accept the fact that the markets are always right regardless of your opinion.
- Knowing ahead of time how much we are willing to risk on any single
trade and using stop loss orders or options to specifically control that financial risk.
- Knowing ahead of time the approximate target objective or profit potential in each trade, so that we may determine if the risk truly warrants the potential reward.If the potential profit reward is not at least double the amount of risk, then the trade is unacceptable regardless of how perfect it may look.
- Taking action consistently and immediately on all market
signals (entry, exit, profit targets, stop losses, etc.)
- Accepting losing trades for what they are without regret because you
did not risk an emotionally significant amount and you followed your rules mechanically without bias or any emotional subjectivity.
In Short Know You Entry/Exit/SL well in advance before you enter the trade.