Note From Kalen: As always, I allow all kinds of ideas to be shared in regards to investing. Do your own research before investing in anything, or in any way.
For any kind of business, and especially in trading, people will have to maintain the cash flow from their account.
It will help a lot for saving some extra spending from your trading account. For every process of your business, it is necessary to define a certain amount of cash. Then you will be working with that for your trading business.
This is a simple but effective strategy for every business in this world. By every business, we mean the trading business as it also relates to money management. Many traders will not think about this when they are starting their trading career. But it is necessary for all the traders to save their cash from flowing too much into the trades.
In the following article, we are going to talk about it and try to make a clear concept of money management in the trading profession.
Capital Protection is the Start
You will have to start with the whole trading capital first. It’s the root of every money management plan.
When you start to control the whole trading capital for the business, the risks will be predefined mostly.
From there you will be able to go toward the risks easily. According to your knowledge, you will be fixing the amount of capital to work with for the regular trading process.
Then the other part will be kept as a backup for the trading business. It can be used for emergency purposes. This kind of strategy will definitely give much more confidence and security in the trading process. This makes the business very efficient.
Risk Management Policy
Taking a huge risk in the Forex market is very common for the Singaporean trader. Those who really want to lead their dream life based on trading profession must trade the market with managed risk.
Instead of trading the market with real money, open demo trading account with a reputed broker like Saxo.
Forget about the profit factors and try to understand the true art of trade management. Since the market is totally unpredictable you must be prepared for the worst case scenarios.
Never think a certain trade will be a winner in this market.
Trade with low-risk exposure so that you can save your investment in the long run.
Define the Risk-Per-Trade
After fixing the amount you are going to work with for the whole trading business, the risks are going to be next in the bucket list. There will be no proper money management without thinking about the risks per trades.
For a good quality control over your money, this is a must.
For each and every trades you will be fixing a certain amount. And that will be according to the risks to profit margins and your experience and knowledge.
For the beginning, the traders may not have the chance of using any of those. For that, they will have to deal with the least amount of risk per trade. Because the more you can stay safe from losing is better for your business.
The beginning of a trading career yields a lot more losses than any other time periods in this profession.
When you are dealing with the money management, it should be also with the closing of the trades. The risks definition is for the start of your trading process.
The stop-loss and take-profit is the end of the trading process. For those who don’t know about any of those two, they are the limit which is used to automatically close the trades for protecting them from losing too much money.
For that, traders will have to think about their desired risk to profit margin in every trades. Based on that, they will be setting up take-profits in every trades. Based on that, the stop-losses will be set for each trade too.