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A good article on money management

{}Posted in2023/2/24 14:31:11 | 5Browse

When you hea forexcashrebate that someone has made a huge fortune in the market in a short period of time using a relatively small forexrebates account, it cashbackforexexness more like a fluke: because the trader does not have sound money management skills perhaps the trader may have inadvertently used an extraordinarily large trading position Forex rebate for Exness put his or her account through a huge ForexrebateforExness. But it is only a matter of time before such a trading style leads to huge losses in profits, and the traders psyche and account will be destroyed by such a trading style. If you make the same amount or number of contracts every time you trade, you wont have to calculate the right trading position to avoid risk. In order to help you reduce your investment risk, the first step is to convince you that you need such a money management plan. Generally, only after experiencing the pain of a big loss will you accept a money management plan so that you realize how wrong trading positions and lack of discipline cashback forex jeopardize your trading results. You can use the following formula to determine the maximum trading position (in addition, examples A and B of this article are also illustrated) MONEY<wbr>MANAGEMENT---Money Management<dark sleeves/translation>Riskamount---Maximum amount of loss that can be sustained Commission-cost (commission, spread, etc.) Differencebetweenentry&stop-entry price and stop-loss priceTradesize-trading position (quantity or contract volume) novice traders are inclined to In contrast, professional traders focus on risk and open positions with unknown returns in strict accordance with proven trading systems. When you are able to answer these questions based on your money management rules, you can either adjust your trading position or set a stop loss before you enter the market. Taking this information into account allows you to better anticipate the risk ratio of each trade. Not every trade will be profitable even with the best trading system, which means that you will lose on average 4 times out of every 10 trades, even with a trading system with 80% higherratesofreturn or This is due to the fact that most systems return to this level. If you lose 40% of the time, you need to control risk. You can control risk by implementing stops and controlling your trading position. If you end the trade with more profit than loss, you will make a considerable gain because of the 60% profit/loss ratio. In fact, with efficient risk control, your mindset and account can withstand multiple losses. After 5 consecutive losses, these traders no longer have enough money to continue trading. This can happen very quickly. The traders mindset is as important as risk control. Confidence is an important part of a traders mindset and is one of the qualities you must cultivate in order to be consistently profitable. You strive to grow your account over time and when you see a steady and balanced growth in your account, you will know you have the mindset necessary to become a trader. The following are important traits that will serve you well: calmness in trading focus on the current reality and do not imagine what the future holds do not speculate on market movements and breakdowns money is not a point of feeling always focus on improving skills open your mind and minimize the influence of subjective factors do not be angry enjoy the process use only a selected system for trading do not have the idea of controlling and The 2% trading risk rule keeps you out of trouble and provides your system with a profit/loss ratio of up to 55% or at least 1-1.6, which means that profits exceed losses by 60%. The risk rule is calculated by first calculating the difference between your trade entry price and your initial stop-out price and multiplying that difference by your trading position (contract size or number of orders), plus commission fees, which is the amount of money you lose on a stop-out (e.g. examples A and B in this article). Remember that the strategy has nothing to do with leverage in fact, you can also use leverage and still keep 2% of your capital account at risk If possible, the 2% risk should include commissions and slippage if you can determine the size of these costs If you do not add them to your current position but you move your stop loss up during the course of the trade so that you can lock in profits when you use a new trailing stop to When you lock in your profits, you are no longer risking 2% on this profitable trade so that you can start another trade. Since the market is formed by a combination of different segments (currency pairs), it is also important for traders to use the 2% fractional risk rule which allows traders to take 2% risk on each segment, up to a total risk of 6%, which can be held in your trading account. For example, suppose you buy Microsoft (MSFT) If you want to buy other stocks while holding a position in MSFT, you want to choose a non-technical sector such as chemicals or banks This rule applies to both options and futures If you trade futures and trade different goods using this rule you can automatically diversify your risk and are less likely to have a partial market crash that will cause your In addition, if the risk in a given trade in a given segment is only 1%, you can make additional trades in that segment until your risk in that segment reaches 2%. Many traders either borrow money or trade with money they simply cant lose, both of which have the potential to make you lose money because it will destroy the good mindset you should have. If you dont have enough money to trade, you can do demo trading to improve your skills and start saving up to start your live trading. This way, when you are ready for live trading, you will have real-world trading experience and more chances for consistent profits. The psychological factor behind adding and subtracting positions in your money management plan is that you can reduce stress by locking in profits quickly, which may help you hold on to your remaining positions to go further in the trend Validate money management techniques This technique makes a huge difference to your bottom line technique The following points are relatively simple to remember, but they can make any difference 1. Use a proven or proven method to calculate your stop loss, do not assign it arbitrarily3. Use a proven or proven trading system4. Use your risk capital to invest 9. Dont use borrowed money to invest 10. Use up and down positions to expand your profits 11. This technique allows you to focus on the trade itself and not become so emotional because of fear and excitement Position control (adding and subtracting positions) can be used in long and short, or other types of markets such as futures, stocks, options The initial position must be large enough to ensure that you pay for the growth of your profitable trades without incurring additional risk because of a large opening position For example, if you start a position and the price is always moving up, then close the position after reaching a specific position Then close a portion of the position after reaching a specific position, which can be 30% of the opening amount and then add to it when the price continues to move upward by a relatively large margin, and exit your entire position when you think the trend is reversing Your initial trading position still follows the 2% trading risk rule There are two ways to achieve this, first, find a market where you can use your current trading capital to open a trade with 2% risk Second, your trading capital plus trading account will allow you to open large positions, as the larger the account the larger the 2% allowed trading position you can also choose to use leverage, but you must be familiar with the use of leverage, their time metamorphosis, delta and other factors need to be considered using leverage must have professional skills, if you are not familiar with how they work If you are not familiar with how they work, be careful when using them as inexperience and lack of knowledge can lead to increased pressure If you are stopped out before you add to your position, your loss is only 2%, which is acceptable from a risk perspective On the other hand, if your trade is profitable, you can hold a portion of your position while closing enough contracts so that even if you are stopped out, you can still have a small profit If the trade starts to take a large profit, you can This clearly illustrates why a larger trading account is more advantageous than a smaller capital account. It is critical to ensure that you have enough liquidity in the market to execute position increases in a meaningful way because a lack of liquidity can be detrimental to your ability to use this technique. For example, the S&P 500 futures market has a high liquidity requirement, while the penny stock market has a relatively low liquidity requirement Your job is to know the market you are trading in and monitor liquidity levels Simply put, your losses will directly affect your liquidity levels If you are an investor and plan to take a long term position, a larger dip in the money curve will have less of an impact on liquidity than a fast in and fast out day trader ( The key for you is to be aware of the market you are trading in and determine the correct liquidity level. For each given trade, you cannot risk more than $500, $500 including losses and commissions to ensure that there is sufficient liquidity to add to positions in an efficient manner Example B: Using the 2% trading risk rule to determine trading positions Trading account $25,000 2% is $500 MSFT $60 per share MSFT initial stop loss $58.50 entry and stop loss The difference between the $1.50 commission in both directions $80 maximum trading position 280 shares your trading system tells you to buy now $60 per share your initial stop loss at $58.50 per share the difference between the entry price and the initial stop loss is $1.50 when your risk is $1.50 per share and your account risk is $500, how many shares can you buy? That answer is 500 - 80 (commission) = $420 Then, 420/1.5 = 280 shares Dont buy more than 280 MSFT shares so that you can maintain proper risk control Follow the 2% trading risk rule If you do futures or options, use the same approach to calculate your trading position Note that the upper limit of your trading position is governed by the futures or Example C: 2% trading risk rule for leverage applied to trading account $50,000 margin amount 150% trading account 75,000 (using leverage) 2% risk 1000 IBM per share value 91.49 IBM per share initial stop loss 90.23 difference between entry price and stop price 1.26 cost 51.22 initial purchase 753 × 91.49 = 68891.97 IBM shares, actual margin amount 188997.97 Maximum trading position 753 shares 2% trading risk The rule takes into account the entry price, initial stop price, commission and trading account amount so it is possible to use leverage (margin) to generate a maximum trading position For example, if we enter at the IBM price of 91.49 and the initial The stop price is set at 90.23 and then our maximum position is 753, this value is based on a trading account of 50,000, commission of 51.22 and 150% leverage to get our real margin amount of 78,891.97, but if we get a stop loss, our risk for this trade is a loss of $1,000, which is 2% of 50,000 Here we have used margin under 2% risk Used margin under control You must recognize the risk of trading in the market For traders who enter the market blindly, trading is easy because, optimistically, they think they can avoid the maximum possible loss On the other hand, the fear of loss will make you trade in a fearful, anxious, negative, impulsive mindset, all of the above mindsets cause results that can be fatal Recognizing the two sides of the coin in turn will enable Only by recognizing the good and bad aspects of what is going to happen and optimizing your money management system, you will be able to have greater success.
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