Be warned, if you fail to implement an effective system for trade money management, it’s highly unlikely that you’ll achieve any noticeable success. Essentially, money management is vital to any trading business.
The skills you require for successful trading are skills you have to learn. Nobody is born a trader. Instead, together with a well tested plan, it requires a huge amount of discipline and an extremely strong will. Even one of the top trading gurus, Dr Van Tharp, states that successful trading is all about mindset and psychology.
Cutting losses and allowing profits to run, is a fundamental rule which all successful traders follow but I can assure you, it’s easier said than done, particularly when you’re in the thick of it and you’re experiencing a string of losses. In fact, without a proper trading psychology, every bone in your body will be telling you to let your losses run, as you desperately hope the tide will change before all is lost. This is exactly why no trader should fail to see the importance of a trading psychology.
If you haven’t learnt how to go against, you’ll need to.
Admittedly, there are thousands of ideal trade entries and equally as many money making opportunities in the markets but unfortunately, without a solid system in place, you’ll be sorely disappointed. Likewise, your system needs to be structured around effective trade money management in order to protect your capital. While systems may be 100% accurate in a perfect world, we don’t live in a perfect world so essentially, one bad loss to see you loose everything in the absence of money management.
Given the extreme importance of trade money management, I would’ve expected to see many courses dedicating whole chapters to the subject and yet I’ve never seen one that does.
The fact is, there are plenty of stories which can attest to the importance trade money management so I’m obviously not the only one who knows about this. It’s just unfortunate that so little is said about it because trade money management needs to be applied, irrespective of what market you’re involved in, or which method you choose to use. The bottom line is; there are simply no exceptions to the rule, regardless of the system you use.
In the vast majority of cases where traders are under-achieving, the primary reason is lack of discipline, with regards to the trading rules of meaningful trade money management. This is hardly surprising though because actually applying these rules, is a far cry from simply being aware of them.
No matter how far down the road you are, a single change of strategy can mean the difference between mediocre results and explosive results.
Essentially, you need to thoroughly understand what you’re doing and also why you’re doing it. Having a rock solid system in place means you’ll no longer be dependent on gurus and tips as a source of information.
Providing you have an exit strategy in place, you’ll be confident when you enter into a trade and that’s what I would like most of all. Additionally, by having an exit strategy predefined, even the most hectic portfolios can be managed with a few minutes each day. Of course, what you should also realize is, you’ll tend to sleep better as well because you would’ve tailored your risks so that they fall within your risk tolerance.
Before I end off, I just want to point out that I wrote this article essentially as an introduction to trade money management. The bottom line is; by implementing masterful trade money management, you will reach all your goals. In fact, simply following all my future articles and applying what you learn, you’ll soon be able to master the markets using excellent trade money management.
