Money management tips and strategies to a long-term profit

Without setting a money management strategy you significantly risk an early loss of your capital. That is why I very strictly recommend you not to make the number 1 mistake that almost every beginning trader does. Learn how to minimise the risk of loss and use your capital to the fullest potential.

An efficient trading plan which is profitable in the long run always consists of a money management strategy. MM strategy, however, is not the type of a strategy that you use to predict price moments of underlying assets. The primary task of MM strategy is to protect trader’s capital in order to give him the opportunity to survive on the market even after a long series of losses. This procedure should be used by any trader, so if you trade forex, binary options or any other financial instrument firmly stiffen the ears, the lesson just began.

money-management
Money management is generally very ignored and underrated strategy, despite the fact that it can significantly help you to a long-term and consistent profits. MM can be set to your needs and to your trading style, but it is important to have it. If you do not use it, you can not responsibly manage your finances. And it’s most likely just a matter of time before you actually end up losing your capital.

Choosing the perfect money management strategy

For each trader, perfect money management strategy can differ in many aspects. It’s because every trader has different trading style, different goals and it is up to you what technique you use. Nevertheless, once you pick a strategy that suits you the best it is important to follow it accordingly, otherwise there is no point in creating it in the first place.

A huge number of traders face the problem of implementing the MM strategy in a daily trading regime. A reason for that is usually because as soon as they start trading, they are unable to suppress their emotions and psyche and they start ignoring their MM strategy, even though it clearly screams that it is time to take a break from trading. Such behaviour can mean devastating consequences for the trader’s capital.

Following strategies are focused on a different minimum number of wins or a maximal number of losses as well as on a maximum money lost. The idea is as follows. If you reach a specified minimum or a maximum number of trades (or money lost/won) you cease your trading process, no matter how much money you have won or how much you have lost to this point. Under this paragraph, you will find various tactics that traders use in an attempt to survive on the market for as long as possible. If you will be able to stay alive with your capital on the market for a long period of time then you are one step closer to a long-term profit and you know that your trading isn’t based just on a luck from a few won trades.

Strategies with low risk

Strategies with low risk are for those of you who do not want to go on the path of a higher risk (and possibly higher profits). This procedure will create you smaller profits, but with minimal or no losses.

According to a number of wins or losses

Stop trading when you reach 10 won trades

Stop trading when you reach 4 lost trades

According to your profit

Stop trading when you earn 50 $

Stop trading when you lose 25 $

According to your win. ratio

Stop trading when you lose more than 70% of your trades

According to closed positions

Stop trading after closing 10 trades.

Strategies with high risk

Strategies with tremendous risk are for those of you who are not afraid to lose large amounts of money with the prospect of creating a swift and massive profit. This strategy is intended especially for more advanced traders

According to your profit

You are already an expert, so you do not need a maximum winning amount cap.

Stop trading, however, when you lose more than 100 $.

According to your win. ratio

Stop trading when you don’t win over 60% trades.

According to your number of positions

You can trade how much you like, nevertheless, you should hold onto one of the limits mentioned above

General tips and advice

All of these tips are just proposals to your MM strategy. It is up to you whether you change the numbers in order to make these strategies work for you. It also depends on your available finances with which you want to trade. In case you want to trade safely, you should definitely not invest in one trade more than 5% of your capital. Regardless of what limits your money management will contain, you should always have enough discipline to stick to these limits no matter what happens. This is the main principle of each and every money of management strategy, which you should keep in mind if you want to trade responsibly.



Michael
Author: Michael
Hi, I'm Michael and my area of expertise is forex and binary options trading. I specialize in technical analysis, namely in chart pattern setups. I educate traders of all levels and I believe that prerequisite to successful active trading is always knowing risks of the game. My most current interest lays in cryptocurrencies, especially in Ethereum and in decentralized applications. I do not give investment advice, but for general inquiries please use the comment section under any article.

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