Keeping losses to a minimum
One of the basic rules of -trading is to keep losses to a minimum. With small losses in -trading, you can survive times when the market is moving against you, and hold on to a good position when the trend reverses.
How much can you lose painlessly?
A proven method of keeping losses small is to set a maximum loss before you open a trading position on e. A maximal loss is the largest amount of capital, the loss of which will not throw you out of the rut, will be acceptable for a single trade. With a maximum loss set at a small percentage of your trading capital, a series of losses will not stop your trading activity. Unlike the 95% -traders in the market who are losing money because they are not applying the proper money management rules to their trading system, you will go far down the road to success with these money management rules.
What happens if you don't set a maximum loss? Let's look at this with an example. If my trading capital is $1,000, and I started the trade with a trade of $100, it would be reasonable to take three losses in a row. That would reduce my trading capital to $700. What do you think 95% traders would say in such a case? They would reason something like this: "So, I've already suffered three losses in a row. Now I have to win anyway."
They will decide to bet $300 on the next deal because they think they have a better chance of winning.
If a trader decides to bet $300 on the next trade because he thinks he will win, his capital may be reduced by another $400. His chances of making money now are very slim. They would need to make 150% on the next trade just to reach breakeven. If he had set a maximum loss, and stuck to that decision, he wouldn't be in this position.
Where does the money go
Here's a great demonstration of Why most people lose money in the market . Let's start with a trading capital of $1,000, and start trading with $250. After three losses in a row we lose $750 and our capital is reduced to $250. In fact, we should make a 300% profit on the next trade and this will allow us to reach breakeven.
In both cases, the reason for the failure was that the trader was taking too much risk and not using the money management rules. Remember, our goal here is to keep losses as minimal as possibleand also make sure that we have opened a large enough position to capitalize profits. By applying the cash management rules to your e-trading system, you can always ensure that.