Trading Money Management Techniques
What are Trading Money Management Techniques?
Trading money management techniques are the specific techniques used to provide a structure for the process of trading and to protect traders from unnecessary losses, especially in times of high volatility. All the successful traders follow stringent money management techniques to ensure that they can perform consistently and efficiently, yet protect their earnings.
Overall, trading money management techniques are defensive strategies to keep the traders in the money and result in ultimate profitable performance.
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Why Do You Need Trading Money Management Techniques?
- Money management is one of the most critical aspects of trading. Many traders earn significant profits; however, they find themselves losing money due to poor money management techniques.Trading Money Management Techniques are the key factors that differentiate between a successful trader and an unsuccessful one. They lead to the growth of the investment by using strict principles and trading techniques.
How is it very easy to lose all your trading money, or blow your account, without such techniques?
Trading is a lot about discipline. Even when a trader earns handsomely, he may end up losing the money the next minute if he is not disciplined.
Trading money management techniques induce this required discipline. Without the money management techniques like stop losses and high risk/reward ratio, all the riches can soon turn to rags.
Money Management Techniques
There are a large number of money management techniques that have, almost always, worked wonders. Some of them are:
- Have a Max Stop-Loss
A day trader may be having a superb day with high profits, but may not anticipate that one trade will wipe off his entire earnings in one go. This is where stop-loss works as a money management technique. Stop-loss must be placed according to accuracy rates of the trades and must be adjusted time to time.
- Take Regular Breaks
It is imperative for traders to take spontaneous and profitable decisions. To meet this need, traders must have high psychological stamina. They need to take regular breaks to fuel themselves back up and to detach themselves from the emotions linked to profits as well as losses.
- Trade only that you can afford to lose
Traders must avoid executing high-risk trades. High-risk trades may end up giving good money, but they also have the potential to wipe out all the earnings. Therefore, an efficient trader must only trade as much as he can afford to lose.
- Find trades with high risk/reward ratio
Potential loss from trade can be compared to potential profit through the risk/reward ratio. It is practical to keep a high risk/reward ratio wherein the target rewards is about 2-3 times than the maximum loss. However, as the risk/reward ratio increases, there are higher chances of failure of the entire strategy. So, the risk/reward ratio should be maintained at an optimum level.
The Amalgamation of Technical Rules and Money Management Techniques
It is highly critical to deploy efficient money management techniques along with the use of technical rules and analysis.
Technical analysis works around the theoretical concept of trading while the money management techniques deal with the psychological effects. A trader may know all the rules like the back of his hand. However, if he is unable to deal with the emotions like greed and fear, he will end up sweeping away all his earnings.
Many day traders who lose money do so due to lack of discipline and efficient money management techniques.
It is of prime importance to learn from others experiences and implement the strategies in your own game. Tradenet offers an excellent avenue for doing so. New and experienced traders can watch top traders like Meir Barak and Scott Malatesta trade live each day on the YouTube channel of Tradenet. Top traders go live every day from Monday to Friday 9:30am-4pm Eastern Time.
Traders can also learn new and productive money management techniques by becoming a part of Tradenet live trading room. They can get real-time advice, mirror trades, and get live real-time audio feeds, video feeds, and charts of stocks.
To sum it up, efficient trading money management techniques form the backbone of profitable day trading. Tra
ders can learn them through their own experience and also through the experience of other successful traders as offered by Tradenet through its live trading rooms and YouTube channel.