Money Management

Technical Analysis does a great job telling you when to enter and exit the markets.
But it doesn’t tell you how much to enter or exit the market! The aspect of risk management is sometimes overlooked when we’re too focused on just reading charts.

Think about it, if you had a good setup, with a 60 pips stoploss and 120 pips profit target. You enter 1 lot, risking 1% of your capital.
This translates into a gain of 2% on your total equity, nice isn’t it?
Now imagine if you had a great setup, with just a 30 pips stoploss and a 120 pips profit target, again you put in 1 lot.
This translates into a risk of only 0.5% of your capital, and it grows your capital by 2% again.
Applying a bit of position sizing logic, IF you had taken on 2 lots, risking only 1% of your capital(same as your first trade), your 2nd trade could have grown your capital by 4%!
Now stop and think, how do you want to benefit from the better setup on the 2nd trade? A tighter stop with similar profit target. Yet you’re benefitting in terms of losing, ie. you’ll lose less in event of a stoploss.
But instead of aiming to ‘benefit’ in event of a loss, would you like to think of maximising profit since your risk is already well controlled?
You could risk 1% in both trades, one setup would get you a 2% gain, the 2nd setup would get you a 4% gain.

Same price movement, but with a tighter stop, by using a different position size you can maximize your profits.

This is an example of just one of the Position Sizing strategies which can help you to maximise your profits.

Money Management encompasses determining a suitable position size, evaluating risk/reward ratios based on your risk profile and some trade management.

Perception of Risk – how do you view risk?

Position size – how position sizing can help you maximise profits or minimize risk.

Risk vs. Reward – evaluating risks vs. rewards to see if a trade is worth taking.

Trade Management – some strategies for managing an open position to minimise risk and protect profits.