Well all of that is a good rule of thumb. Thankyou.
I'm sure this response will seem very UNsexy. I have no complicated formulas or math equations just simple logic that utilizes the following principles:
These principles (if you stick to them) are simple, effective, and easy to execute in real time without the aid of a calculator or some whiz-bang computer program, or "gee whiz, look at that..." indicator. Keep it simple and you will be (stay) profitable.
how to choose the proper lots? on which basis?
I do not recommend using FX trading for income, although I know a few people who do just that. I feel your playing field is more"level" in a more transparent market like futures.
assume you have 1,000 USD
You want to enter EURUSD Buy,
what is the size (=lots=volumes) of you position?
In fact, my main rule is not to risk large amounts of my fixed capital, i.e. I do not apply them to one asset. In my opinion, it is much more effective to allocate the same 10% of capital to 3 or 4 assets and then to observe the situation and then either buy or drop a position. To be honest, sometimes I get a feeling of disappointment if I see that I have invested too little in a strong and profitable position. But on the other hand, it is my safety and the safety of my money. And it's much more important to me than a moment's sadness. Still, as practice has shown, the market does not like fuss and these impressions are deceptive. That is why at such moments I try to switch to something else at once and do not allow myself to rest on my laurels.
My money management method is risking less than risking more and it is not always the same. Some times it uses a reward of 4 to 1 and others 25 to 1, but never the same. I haven't managed yet to make 1:2 or 1:3 in all my trades this kind of money management is just a context for the new traders who can take it as an example.
Also you may hear, or read, "never put your eggs in one basket" but I know that by watching too many baskets you may break more eggs, because you can't watch all the baskets the same time with the same attention.
Great thread, good money management is more important in determining long term profitability than most other trading parameters. I look upon MM as a key plank of risk control, and risk control is my #1 priority in trading.
How you structure your MM depends on how you trade. I day trade a single market only and in this context my MM is:
- only one trade open at a time
- all trades have a hard stop that is always respected
- trades are sized so that each trade risks 1% of the account at the stop
- move the stop up appropriately as the trade progresses favourably
- never average down or pyramid up a position
These are simple rules and will keep you out of any real trouble. If you are comfortable with higher drawdowns and a more jagged equity curve you could risk more than 1% per trade but going beyond 5% is asking for trouble. Most blown accounts are blown not out of 'death from a thousand cuts' of loads of small losses, but from huge individual losses which can only occur if MM and risk control is poor.
If you trade multiple markets you need to incorporate in your MM some sort of volatility balancing between markets.
If you have more than one trade open at a time you need to consider the trade correlations in your MM so you can estimate your overall exposure.
If you want to average down or pyramid up, you need to consider in your MM the resultant risk exposure of doing so and make sure it stays within prudent limits
I trade always calculating what loss in case it goes against me is acceptable. By doing these easy numbers I found out I'm willing to risk 1% of account per trade.
Philosophy here is pretty transparent - small gains or small losses, but I will stay in the game and see the other day.
I stick to the most liquid currency pairs, the low spreads help me to better manage my trade.
Also, I always have a realistic goal, be it daily, weekly or monthly, it helps me emotionally.
I do not trade with high amounts, my lot sizes are mostly micro lots.
This strategy is very basic and personally for me it works really well.
We're all different in every aspect and it is important for everyone to find something that suits themselves, every trader can customize their own money management strategy.
I keep a trading journal. Keeping a trading journal helps me identify my weak spots of money management and identify patterns that lead to lost money.
For example I see if the stop-losses are too tight or take-profits too far away, reward-to-risk ratios inappropriate or risk per trades too large.
I then adjust my money management techniques and become more successful in the future. Learning on your own mistakes is the best.
Wow, so many traders shared their method while the OP himself went AWOL! Sorry
I will update post one shortly with everyones MMM along my method as well. Thanks everyone for sharing. Much appreciated. Because sharing is caring, you never know your post might inspire someone to take control of their trading appropriately.
Earning money is very tough, so for this i need to management my money with best place and best methods. I follow some tips for managing my money..
1. Have a budget.
2. Using my budget.
3. I fixed a limit for unbudgeted spending.
4. I just track my spending.
5. I don't commit to any new recurring monthly bills.
6. I just make sure that, i paying the best prices.
7. I save up for big purchases.
8. I limit my credit card purchases.
9. Contribute my saving regularly.
10. And i just taking practice being good with my money.
So, i just follow this tips. Its helps me for managing my money with best place.
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