Trading is not different than other businesses in the case of money management. In others, money management is done based on how much products (for example) you will produce and when it is the season for a particular product. Sometimes a product can be al seasonal and it can be a good one. In that case, you have to work with production efficiency, for reducing any extra cost. In the case of trading business, you also have to work with the cash flow over your trading account. Because otherwise, the management can lose track and fall right into losing. Today we are going to learn what is needed for controlling the cash flow over a trader’s account. In the following of this article, some necessary topics will be discussed which are important for money management purposes.
Understanding your risks and rewards
Before you make plans for anything related to money management, you need to know how to do it. By how we meant the type of changes in your plans. You need to know how much you are risking per trade and how much is coming out for them. It will help to analyze the performance figure. If the risk to reward ratio is something like 2:1 or something, your investment is higher than the outcome from a particular trade. In this case, you can adjust the positioning of a particular trade and fix that problem. On the other hand, it the ratio is like 1:2 or 1:3, your trading performance is good and there needs nothing to be changed. If the results are like 1:-2 or 1:-4, you have to work on both the position sizing and risk management.
Exploring the weakness of your strategy
Those who think they have the best trading system in the world is making a big mistake. No system is perfect even the senior Singaporean traders lose money due to their system fault. Due to the dynamic nature of this market, the traders need to update themselves continuously. Never jump into a trade based on a powerful trade setup in your online trading platform. Assess the fundamental factors of the market to make some real progress.
Knowing about your tolerance limit
Unlike any other businesses, this one seems to give traders a lot of pain. And most of the time, the pains are caused by losses. Traders lose money and the effect of that comes to their head and eventually, to their performances. In this case, you can follow some strategic plan for your own trading account. If your performance is not so good, the investment in every trade should be less for your own account. But, you have to know what you can tolerate putting in a trade. That means, how much you can effort to lose in a singular trade. It will not affect your performance after the closing of a trade. Thus, you can continue this business without any hesitation and distraction.
Learning about position sizing
When your trading business is facing too much problem in making profits, you have to know what the problem is. We have already talked about the risk per trade issue. But, losses can be caused by bad positioning of a trade too. Because without any proper knowledge about trading positions traders cannot execute good trades. In this regard, you have to strategic with different types of tools. Like you have to use swing measuring tools. Or you have to know about solidity in price trends. Then there is a supports and pickup and resistance points. There are a lot of things you can use for finding out a good position for a particular trade. With all this strategies and plans if you manage to open a trade at the right time, it will be a good one for resulting out a good risk to profit ratio.