MONEY MANAGEMENT- General
The most important factor in successful trading is money management. One still has to be savvy at chart forecasting and-or fundamental analysis, but it's the money management factor that will make or break a trader.
Over the years, I have listened to the best traders in the business talk about what makes them succeed in this challenging arena, and nearly every one emphasizes the importance of sound money management.
Surviving in the market absolutely requires practicing sound money management. Even a rookie trader who starts out with a hot hand will eventually find that at least some trades are not going to go his way. And if he has not employed good money management principles on those losing trades, he will likely have squandered his trading profits and his entire trading account.
Conversely, the novice trader who uses good, conservative money management techniques will be able to withstand some losses and be able to trade another day. The ability to take a loss and trade another day is the key to survival--and ultimate success-- in the trading arena.
Here's an important point to consider, regarding money management and successful trading: Most successful traders will tell you that during the span of a year they have more losing trades than winning trades. Then why are they successful? Because of good money management. Successful traders set tight stops to get out of losing positions quickly; and they let the winners ride out the trend. On the balance sheet, a few big winning trades will more than offset the more numerous small losers. Good money management allows for that to happen.
Here are just a few very general money-management guidelines:
· For smaller-capitalized traders, don't commit more than one-third of your trading capital to one trade. For medium- and larger- capitalized traders, you should not commit more than 10% of your capital to one trade. The guideline here is, the larger your trading account, the smaller your commitment should be to one trade.
· Your Risk:Reward ratio must not be less than 1:2 for any trade you plan to take; if the reward is less than the risk, then no need to take the trade. This means, your risk/money management starts right from the onset of the trade entry planning.
· Use reasonable protective stops in all your trades. Later (as you ride with the trend and in the money) move the stop to the opening price to break even if trade goes sideways. Depending on how far you’ve gone in the trend, you can further trail (move) your stop to lock in profits as you go along. This is called Trailing (profit) Stop. This Trailing Profit Stop is a dynamic stop that follows the rising tide (price). As the price increases (i.e comes into your favour, being an up or a down trend), the "STOP" will trail this trend. effectively maximizing returns. When the price goes down (i.e against you, being an up or a down trend) the stop will not move, thus enabling you to lock in the profits when the trailing profit stop gets triggered. Remember, STOPS are pending orders! Or, you could simply walk away after moving the stop to the open price to break-even, and wait for the Take Profit or the Time stop to be hit.
Never, never, never add to a losing position.
I can't stress enough that survival in the trading arena (especially for beginners) should be your top priority. And this can only be done with proper money management principles.
A solid technique coupled with good money management parameters to it is the key!
The first element of any trading plan is the amount of capital you intend to invest. This is up to you, but you should understand that there is a direct relationship between the amount of capital you commit and your probability of success. The more you invest, the greater the likelihood that you will make money.
An important thing to keep in mind when deciding how much to commit initially to trading is that the amount you invest must be "risk capital." Risk capital is defined as money you can afford to lose without affecting your standard of living. It should also be money that you feel comfortable risking. Think of your trading account as an investment in a business. Many businesses fail. That's life. Make sure you won't be so afraid of losing money that it will affect your ability to make correct trading decisions.
The next part of your trading plan involves how you will make your actual buying and selling decisions. Under what conditions will you enter trades? When will you exit your trades? What markets will you trade?
There are four cardinal principles, which should be part of every trading strategy. They are:
1) Trade with the trend,
2) Cut losses short. Example, you entered a BUY for a signalled uptrend, your Take Profit is far from hit, a “time stop”, which is an arbitrary time stop you have set for the trade to close. You are better off closing this trade to lock in the profit, however little it may be.
3) Let profits run
4) Manage risk- Use trailing stop as explained above.
You should make sure your strategy includes each of these requirements for success.
CAUTION: There are so many non-working Expert Advisors (i.e. robots) out there that will just churn and burn you; my honest advice is to stay away from the so-called “Robots” or Expert Advisors.
Recommended foundational studies (a prerequisite to using the HN Market Cycles Signals services):
1. Candle Theory Mastery (Jea FX vids.)
2. Real Supply & Demand Mastery (Jea FX vids. & Pips of Persia)
3. Market Structure Mastery (Jea FX vids. & Pips of Persia)
4. Liquidity Mastery (Liquidity Inducements and Liquidity Sweeps!) (Jea FX vids. & Pips of Persia)
5. Top Down Analysis (Jea FX vids. & Pips of Persia)
6. Institutional Candles (ICs), Insufficiency/Imbalance zones/Fair value Gaps (Jea FX vids. & Pips of Persia)
7. Entry Timing Mastery (Jea FX vids. & Pips of Persia)
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HAPPY TRADING