How Important is Money Management in Trading?

Money management is the most important part when trading. There are different ways to look at money management. Money management involves determining how much of your overall portfolio are you willing to risk in any one trade. Money management can define the difference between a successful and wiped out account. Traders who enjoy the greatest amount of success are those who clearly define and understand the rules in trading.

Three Money Management rules in trading:

  • Living to trade another day. This is perhaps the greatest advice you can receive when investing. The single factor that causes most investors to over extend themselves and blow up their account is greed. Remember there is no secret or a holy grail to trading.
  • Know what you are willing to risk. If you don’t risk too much of your account in any trade today, you know that you will have enough in your account tomorrow. The first thing that you have to do is to determine what percentage of your account are you willing to lose in any one trade.
  • Know how to determine trade size. Trade size is the amount of currency you purchase in any one trade.