Money Management is a crucial element of trading the financial markets especially in times of volatility. It is a defensive concept that keeps you in funds so you can trade another day and underpins profitable performance. On a basic level it tells you if you have enough new money to trade additional positions.
Money Management / Risk Management is the key factor that is the difference between success and failure especially when using leverage. Risk management should be seen as a positive part of your trading armoury. If you use it in a premeditated strategic fashion, solid risk management can be used in an offensive and profitable way.
Machiavelli the infamous Italian renaissance writer is often associated with the term "the end justifies the means". With risk management you need to manage your means to achieve your ends. Much too often new traders focus on capital appreciation with little attention paid to capital preservation. Sometimes it is absolutely the right thing to do to take a loss in order to avoid making much larger and more catastrophic losses to your hard earned funds. So you have to prepare to lose battles to win the war!
Let's bring this to a basic level. Say you tried the old trick of playing roulette and you doubled your $5 stake each time in the hope that you would end up a winner. Your basic premise is that you have a 50:50 chance so one could ascertain it would be impossible to lose say 10 times in a row. Well chances are for the first few times you could be right. But if you want to be profitable in the long run you most certainly are not. Remember the roulette ball does not remember the previous number it landed on and each bet is a new event. So it is statistically inevitable that you will get 10 losing bets in a row which turns that $5 stake into a $2,560 losing streak. If that same player multiplied his stake by 5 for each loss, the losing streak would turn into $9,765,625 after only ten hands are played. This would undoubtedly be defined as bad money management.
Good money management is the realisation that using a small percentage of your capital is a smart place to start. If you don't manage your capital it is tantamount to going to the casino! The number one reason why individual retail traders fail is through a lack of understanding or application of money management principles. Most traders utilise leverage without any knowledge of how this wipes out trading accounts time and time again due to normal market volatility. Our approach is focused on optimising investment growth by utilising strict risk management principles and trading techniques.
Our trading, like our training, covers both short and long term financial trading on a wide range of instruments.
We place great emphasis on customer care as we analyse our students' particular trading strategies and personal routines. Where this approach is employed, we find that trading returns are maximised, costs are kept to a minimum and traders are satisfied.