Simple Money Management Rules for Traders

The difference between a successful trader and a losing trader has a lot less to do with the successful trader’s ability to pick winners than you might think. All traders are going to experience losers and lots of them. It’s a fact of the business.

Trading is about PROBABLITY AND RANDOMNESS, Most of tradrs taking trading as CERTANITY. Trading the financial markets can result in both profit or loss. You enter the trade and there is a 50% chance the market will go up, so is 50% it will go down.

With growing experience, you learn and master your traidng stratergies if you give a conscious Effort . To maintain your trading account fund you will also need to study money management strategies. And here is your guide.

Lets Understand  Why losers lose

After winning, gamblers selected safer odds.  After losing, they selected riskier odds.  After winning or losing, they expected the trend to reverse:  they believed the gamblers’ fallacy.  However, by believing in the gamblers’ fallacy, they created their own luck.  The result was ironic:  Winners worried their good luck was not going to continue so they selected safer odds.  By doing so, they became more likely to win.  The losers expected their luck to turn so they took riskier odds.  However, this made them even more likely to lose.  The gamblers’ fallacy created the hot hand.

You can’t predict the order of trades and must be prepared for the worst. Say you start trading in Index Futures with 100,000 and that you need at least 10,000 (the initial margin requirement) to make each trade. If you have ten losers in a row, you are broke. In fact, eight losers in a row and you are shut down, taking into brokerage.

The worst case scenario is that you could lose 10 straight trades and then hit eight straight winners. The likelihood of such a string of losses is remote, but it could happen.

That is the reason that most traders end up losers. They don’t allow for the possibility of a major string of losing trades. The truth is that while the worst-case scenario may be unlikely, something approaching it has a relatively high probability of occurrence. Over time, it is a virtual certainty that at some point all traders will suffer a long series of losing trades.

Fixed trade size

What successful traders are doing is simply each time trading the same sum of money. As you can see in the example beneath, fixed trade size will eventually bring you profit when your prediction was right in 6 out of 10 trades. As Seen in below Example trade risk a Fix sum of 2000 Rs in every trade and also stick to 2000 rs Profit only and if he is right 6 time he ends up making money. Important thing to note is You need to Risk a Fix Sum and You need to wait till profit of Rs 2000, 

Remmber the Golden Rule: 

  1. When you win…  Study why you won.  Improve your strategy particularly when you win in order to continue winning.  
  2. When you lose…  Study why you lost to improve your strategy.  Never count on the odds to eventually work back in your favor.  

Trade structure and money management are critical for all traders. There is no system for entering and exiting a trade that will make you money in the long run if you fail to follow the rules of trade structure and money management. Eventually, the system will break down, and you will suffer a string of losses. Accept that and plan for it, and you will enter the ranks of winning traders.

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