Trading is a serious and risky business. When you begin your journey with trading, you must realize there is always risk involved. However, I have some good news for you. There are some tricks that can help you to manage losses and ensure more peace of mind. What are they? Read the article and you will get the answers.
7 tricks that will help you to manage your capital reasonably
Below, I will describe 7 money management tricks that you should implement in your trading in order to improve your performance. There is never a guarantee of success but you can choose to be on a path that is going in that direction.
Choose the capital management method
Generally, there are two approaches when it comes to money management. One is no better than the other. It all depends on your level of proficiency and your skills. More important is that after you make a decision on a method, you are faithful to it.
The first capital management method is more conservative. It is recommended to beginners. It says that you should not invest in a single trade more than 1% of the balance account and no more than 3% at once. So you cannot open too many positions simultaneously as you cannot surpass 3% of the whole balance. A good side is that you do not have to have big capital to use this method. You start with small investments.
Let’s see it in numbers. Let’s say a trader has $100 in the account. He should invest a maximum of 1% which is $1 on a single trade. Then, he should not exceed 3% of the whole capital so he may have 3 positions opened at the same time.
The second, more aggressive capital management method implies an investment of not more than 5% in a single transaction and using not more than 15% of the whole account balance at the same time. More experienced traders can use successfully this method.
For example, a trader can have 3 deals opened simultaneously each of which is opened for no more than 5% of the total account balance.
Diversify the assets
You may think it is a good idea to know one market perfectly and invest only there. But the market often behaves unpredictably and if you invest all your money in one instrument you may discover one day you are left with nothing. So think about diversification of the assets instead.
As professionals suggest, it would be best to choose 4 or 5 assets on various instruments. For example Forex and Stocks, ETFs and Crypto. They are tradable at different times and this also ensures that the situation on the market will somewhat differ.
Asset diversification will help you to manage risk and potential losses.
Enter the trade at the right moment
Some think that trading is all about opening the trades. And while there is so much more to it, entering at the right moment is important indeed. There is never a 100% guarantee it would be a profitable trade but by doing everything you can to find the right entry point you minimise the risk of losing.
So what you can do? Use technical indicators to identify the best entry points, do not base your decisions on intuition only but on reliable data. Follow the economic calendar so you are aware of what to expect in the nearest future.
Enter the trade always with the intention of protecting your capital. This is your first task. Profits will come later.
Aim for the longer timeframes
The timeframe you will choose very much depends on your skills and preferences. However, especially when you are a beginner, start with the longer timeframes. They are easier to analyse and the indicators show less false signals on them.
Trading short timeframes is riskier. You have less time to make a decision and you end up relying on your intuition rather than on technical analysis of the market. This may end up badly for your capital.
Set your limits
You should always start a trading session with a plan and then you should follow it scrupulously. This plan should include your limits. Think about the limit for the number of transaction you would open in one day. Then think about the limit for the number of successive losing trades you can manage.
These limits will help you to keep your mind calm and avoid emotional trading. They will ensure you take a break when needed and that you will not continue trading out of anger, disappointment, excitement or urge to recover losses.
Analyse your performance
You might hear it is important for a trader’s success to keep a trading journal. It is a place where a trader note all his transactions and he can review them any time he needs to. It means you should write both, profitable and losing trades. It will help you to analyse mistakes. To see what serves you well and what does not. When is the best time for you to trade? What are the most profitable assets for you? Which trading strategy brings the best effects? Without carrying out an analysis of your actions you risk repeating your mistakes over and over again. And what you want is to learn from past errors and become a better trader.
Withdraw the profit
You should regularly withdraw your profits. You can do it every month or every week. Transfer 30 to 50% of your outcome to your account. Maybe the amount will not be great but the importance of the act of withdrawing money is significant. It gives you motivation, it protects you from getting discouraged and it helps you to concentrate on making more money.
Every trader dreams about making big money and the faster the better. Trading is not easy but it can be profitable. In order to bring forth success, you must be ready not only to invest money but also your time and commitment.
Having a good money management system is important. 7 tricks described in today’s article will help you to build one. Include all of them to get a well-balanced strategy.
Make use of the demo accounts that you will often find in the brokers’ offer. You can practice different approaches there without risking your own money. Decide what works best for you and then move to the live account to open real trades and earn real money. I would be happy to hear about your strategies and money management tricks. Share them in the comments section below.
Best of luck!