Money Management Rules For Trading

Markets have been trending last month and now as we have entered sideways market for the past few days,we are getting whipsaws in trading, resulting in losses.So how to deal with such situations and minimize the loss?

The answer to the above question and for overall “good trading discipline” lies in sound money management practices.Money management is perhaps the most neglected idea in trading, psychology is another aspect often ignored by traders.

But I am going to present it in a simple way.It will ensure that you keep your trading volumes in check, thus giving you enough liquidity and peace of mind in tense situations.

Nifty Money Management Rule

  • Lot size of 75.
  • Current Nifty value: 9250
  • Nifty contract Value = 75 * 9250 = Rs 6,93,750
  • Margin required = Rs 1,50,000
  • Capital Required to cover draw downs = 1 times margin = Rs 1,50,000
  • Total capital required = Rs 3,00,000
  • Desired annual gains = 50% on capital = Rs 1,50,000
  • Annual gain in points = 2000
  • Per month Gain Required = 170

Bank Nifty Money Management Rule

  • Lot size of 20.
  • Current Bank Nifty value: 19350
  • Bank Nifty contract Value = 20 * 19350 = Rs 3,87,000
  • Margin required = Rs 1,00,000
  • Capital Required to cover draw downs = 1 times margin = Rs 1,00,000
  • Total capital required = RR 2,00,000
  • Desired annual gains = 50% on capital = Rs 1,00,000
  • Annual gain in points = 5000
  • Per month Gain Required = 416

Stop Loss

This will depend on your trading style as well as your time frame. If you are a day trader, your setups will be on 5 or 15 minute charts and maximum Stop loss should not be more than 25-30 points. As a trader there will be losing streak . To protect against such runs, the trader must make some rules to avoid trading when conditions / setups are not in favor. For example: stop trading for the month if losses exceed 7% of capital. The exact number is not as important as the discipline.

However, random trading will not give any benefits. Traders should work on disciplined methods.

Few traders might think Too much capital is required to follow this plan, it may not be not easy for new trader initially butTtraders who can follow this plan will have very rare chance of getting blown out. Its a very conservative strategy and will make sure you survive difficult market condition and make money on a consistent basis.

4 thoughts on “Money Management Rules For Trading”

  1. per month Gain required in Banknifty is
    5000 points annually / 12months =420 points (approx) in Banknifty per month approximately

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