Without Trade Money Management, You're Trying To Save A Sinking Ship
Be warned, if you fail to implement an effective system for trade money management, it's highly unlikely that you'll achieve any noticeable success. Essentially, money management is vital to any trading business.
The skills you require for successful trading are skills you have to learn. Nobody is born a trader. Instead, together with a well tested plan, it requires a huge amount of discipline and an extremely strong will. Even one of the top trading gurus, Dr Van Tharp, states that successful trading is all about mindset and psychology.
For example, let's say some of your trades aren't going as planned. Many traders, new traders in particular, would let their losses run in the hope that market conditions change before they loose everything. While this may seem like the best thing to do, the number one rule of trading tells us we should be doing the exact opposite – "cut your losses and let your profits run". Of course this may sound obvious but please believe me, when the pressure is on; you're going to need a good trading psychology to see you through.
If you haven't learnt how to go against, you'll need to.
A good system doesn't revolve around favourable trade entries and other money making opportunities within the markets. Instead, a good system is built around masterful trade money management. After all, money management in trading is what protects your capital when the markets don't behave as you thought they would. Remember, no system is perfect and no system is 100% accurate. Let's face it; nobody wants to loose everything simply because of one single trade going wrong.
Considering just how critical trade money management is, I find it alarming that it's rarely even mentioned in courses. In fact, I'm yet to find a course which explains trade money management as it should be explained.
No matter what markets you trade in, and no matter what methods you choose, trade money management is critical to your success. In fact, many traders even refer to it as being the "Holy Grail" of trading. I'm certainly not insinuating that I'm the only trader to have discovered this because there are scores of stories where money management is cited as being responsible for great success. The fact is, trade money management has to be applied, irrespective of the system you use and what's more, there can be no exceptions.
I'll even go as far as saying, if you're not managing to reach the trading goals you've set for yourself, you'd better take a closer look at how you're implementing trade money management. As any experienced trader will tell you, anyone can learn the trading rules, but not everyone will be able to apply them.
Remember, change can come about anytime, no matter where you are with your trading. In fact, it only takes a single new idea in order for losses to become profits.
Essentially, you need to thoroughly understand what you're doing and also why you're doing it. Having a rock solid system in place means you'll no longer be dependent on gurus and tips as a source of information.
Primarily, you need to be confident when you enter into trade and the way to achieve that is by ensuring you have an effective exit strategy in place. Not only does this boost your confidence, but it also makes it possible to manage even the most aggressive portfolios. Above all, by ensuring your risks are well within your risk tolerance, you'll also have a good night's rest.
Above all, you need to believe in the importance of good trade money management and that if implemented correctly, it will make it possible for you to achieve your goals. Because this article is intended only to be an introduction, I've only covered the tip of the iceberg with regards to managing trade money. However, my upcoming articles will delve a lot deeper as I aim to help my readers master the markets with masterful trade money management.
