The Importance of Money Management in Trading

The most important part of trading is money management. Money management involves the following:

  • How much of your overall portfolio are you willing to put at risk in any kind of trade?
  • Proper money management can be the difference between a successful account that you are able to manage and all unsuccessful account that you decimate in the next 6 months.
  • The trader who are mostly successful are those who have established and clearly defined rules that clearly define trading. These rules help traders avoid the money management pitfall that can pull them down.

Three Important rules in Trading.






  1. Live to trade for another day. This is the greatest advice you get when investing. Don’t let greed eat you up. This can make you lose everything. Remember that there is no secret and holy grail to trading.
  2. Know what you are willing to risk. If you do not risk too much of your account in any trade today you definitely know that you will have enough in your account tomorrow. Always determine what percentage of your account you are willing to lose in any one trade.
  3. Know how to determine trade size. Trade size is the amount of currency you purchase in any one trade. First decide where you are going to set your stop loss. Then figure out how many pips lie between the point where you are going to enter the trade and stop loss point. Trade size is equal to the amount at risk/stop.