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Managing Your Money

Posted By Robert On Thursday, April 23rd, 2015 With 0 Comments

What is Money/Risk management?
Risk is the possibility Of loss. The key underlying concept of risk/money management is to limit how much money we are willing to let the market extract from your wallet when you make a losing trade. The essence of risk management is ‘making a logical decision’ about how risk you are willing to take in any one trade. Accept too much risk and you increase the odds that you will go bust, yet too little risk  and you will not be rewarded sufficiently enough to beat transaction costs of your trading. Good money management is about finding the sweet spot between these two undesirable extremes.

Different Risk for Different Styles
Good traders operate differently. Longer term buy-and-hold investors and shorter term active traders. Traders are not loyal to the stocks or positions they buy and sell.  They measure the risk of each trade. They may have profit objectives but more commonly they use strict money management as a vehicle for preserving capital. Success in the trading game is dependent on this.  Bad traders tend to bring a valuation Bias and habits of the longer term buy-and-hold investors to short term trading, which requires a completely different skills and a unique way of thinking.

In the CFD tutorial category of Risk & Money management upcoming topics I will cover are :

  • Determining Exit Points
  • Finding capital Exit points
  • Position sizing
  • Re-Entry
  • Core Equity
  • Drawdown
  • Trading psychology
  • Trading environment
  • What to do when things go wrong
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