Money Management

Money management is the principle of allocating a small portion of your account per position. Losses are an inevitable part of this business. There is no trader without losing positions. If someone is telling you that they always win, they are simply lying  to you. If someone says that they win 90% of the cases, most likely they have a greater tolerance to losing positions and their biggest disappointment is just around the corner. Good traders usually have a success rate between 60% -80%. Therefore, no one opens a position with their whole trading account. We can take the example of casinos, where roulette tables always have a maximum betting policy. Casino owners are always aware that they have an advantage against the players. The more games, the bigger the chance for the casino to make profits, as it is hard to predict the outcome of every spin. Good traders are in the same situation. They know that they have an advantage over other market participants and 6 or 8 of the 10 cases would win. However, there is no way of knowing whether their next position will be a losing one.

Different traders have different tolerance for losses. There are people who would risk up to 30% of their trading account for one position, but they are always ready to add additional funds to their account. We do not recommend this to any of you. The commonly accepted risk rate by most professional traders is 2% to 3%, for scalpers it should be about 1%. It is not much but this is the safest way. At 2% risk rate you will need 50 consecutive losing trades to empty your account and there is a very low chance to achieve such results. When the risk is measured there is less stress. This makes your work more enjoyable, and you can clearly evaluate the situation and make better decisions.