Money Management
MONEY MANAGEMENT RULE
Money management is a very important concept that has an enormous effect on drawdown and margin calls. Some of the main rules of money management are the following:
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Rule 1) Never risk more than 1-3% of your deposit on any single trade.
You may have heard this rule a hundred times before, but it is amazing to see how many good traders fail to comprehend this concept – and don't understand why they are wiped out again and again, despite great entries and timing of trades.
Stoploss is calculated regardless of your level of risk or your equity,
and is based solely on price-action. After deciding on the Stoploss, enter it together with your deposit size and desired Risk % in a Lot Size calculator .
To calculate Lot Size, you can use this online calculator: CALCULATE
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Rule 2) Never gain/lose more than 10% of your deposit in any single day.
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1) For example, your deposit is 100%.
2) Each trading day should either result in a 10% gain or 10% loss. Never more than 10%.
3) Let’s imagine that out of 5 trading days, we had 3 profitable days (10% gain each day) and 2 losing days (10% loss each day).
4) According to this example, by the end of the trading
week we would have made 10% profit. Here is the formula: 100%(Deposit) + 30%(Profitable Days) - 20%(Losing Days) = 110%
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If we didn't use this method, some of our losing days could have resulted in more losses (for example 15% or 25%) and in the end of the trading week we could have been left with poor results.
I hope now you understand why it is important to never gain or lose more than 10% of your deposit in 1 trading day. Never try to double your deposit in 1 day and always stop trading if you have lost 10% of your deposit. Slow and steady wins the race.
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Rule 3) Never use Martingale Strategy!
This is a very unsafe money management strategy that promotes increasing Lot Size after every loss. At first, this might seem as a good method to cover a previous loss and make profit, but actually, it almost always leads to burning entire deposits.
