Proper money management is the key to success. If traders don’t manage their trading capital properly, as soon as they start making profits many traders will begin to double or triple the size of their trades. They do this with the hope of increasing their returns exponentially. However, doing this quickly leads traders down the path of failure and blown accounts as they find large chunks of their trading capital vaporized due to only a few losing trades.
Good money management is based upon the following main points:
- Detach yourself emotionally from the money.
- Never trade more than you are comfortable with.
- Never risk more than you stand to win.
First, learn to detach yourself from any money you plan to use for trading. Make sure that any money you plan to use for swing trading is money that you can live without. This isn’t about failure or the worry of failure. It is about being smart. Trading with your child’s college funds will only add unwanted stress. Do you really need to make trading any more difficult by worrying about how you will feed your family if you lose next week’s paycheck? Of course not.
Second, always start small. Don’t rush yourself. The markets will be around for years to come and you should be in no rush. How small is small? Anything that you feel comfortable with. When trading, you want to focus on placing winning trades and not have your judgement clouded by the fear of losing money. To avoid having this happen, trade with an amount that you are comfortable with. This may be only a few cents at the beginning, but that isn’t important. What is important is that you are comfortable and are in control of your trading.
When should you increase the size of your trades? Only increase the size of your live trades when you feel ready. Don’t get greedy. The markets will be around for years to come, there is no rush. If you feel as though you are ready, increase the size and place your next trade. If you find that your emotions are running out of control or making a losing trade causes you almost unbearable agony, stop. Decrease the size of your trades until you are once again comfortable.
Thirdly, never risk more than you stand to gain. This may sound simple and obvious, but many traders enter into trades where their potential winnings are outweighed by what they may stand to lose. The size of your winnings should outweigh your losses by 2:1. An ideal trade is one where you stand to gain $100, but only lose $50 if the trade goes bad.
To profit from swing trading you need to use proper money management. No money can be made if you are sloppily increasing and decreasing the size of your trades based on how you feel. You’ll find that your entire trading account is blown up after only a few trades and your trading career will be brought to an abrupt halt. Be smart. Manage your money and your trades properly to reap the rewards that the markets have for you.
Loading ...
Comments on this entry are closed.