Money Management: Maximize Profit and Minimize Loss
Money management plays an important role in our everyday trading. As a term, money management is how you manage your capital money to achieve your trading goal, which is of course to make profits. Implementing a good money management is a key part of realising a desirable trading outcome. A master of money management is a master trader! Money management is one important element of a complete succesful Trading System
THE GOAL OF MONEY MANAGEMENT
The core goal of successful money management is maximizing profits and at the other side is also minimizing losses. Trading with too much money can add more danger when your trading is losing. But on the other hand, trading with too little money is inefficient because you get small amount profit. Our job in money management is to balance the use capital money, not too big and not too small.
MONEY MANAGEMENT AND RISK MANAGEMENT
You might ask yourself, isn’t money management the same as risk management? Many traders use money management and risk management interchangeably. Both are almost the same, but they have differences. Risk management, in fact, is your choice how much risk you want to place on a trade. For example, you may want to risk 1% or 2% from all of your money. Money management is how you manage your money while obeying the risk defined earlier.
HOW WE DO MONEY MANAGEMENT IN TRADING?
In money management, every trader is defining:
- How much money need to be used in trading (Trading Float and Trading Size)
- How much risk and reward you want to take (Risk and Reward Ratio)
- How much and when we need to add or reduce a trading position (Position sizing)
Hope this article inspires