I have been trying to find an article that talks about the right money management mindset, in the hope to remind many many many of my trading friends (and those who are going to join some trading courses in hope to make big bucks).
In my many years of trading, I realised sometimes the trading strategies is not the core of profitable trading. In fact, there is no trading strategy that works 100% (except it wins more and loses less).
Personally, I used to have a strategy that works monthly (and I assume it's 100% in the 'infant' stage of trading). That strategy works so well consecutively for 3 months, and everytime it gave a returns of 30% to 70% per trade. And every month, I used all my capitals (that capital belongs to my family account) to compound all I had. We started with US$10K that time and truly went up after 3 months. But on the 4th month, i lost everything as the strategy failed. And the account was left with US$137. This was the result of poor money management. And I'm the living testimonial of such a disaster.
1. Always look for strategies that works more than 60% of the time (ya, there is no 100% working trading strategy thus far), so those trading gurus (or should I say training gurus) mentioned blah blah blah blah blah blah, please take note.
2. Always consider if there is a predetermined profit take (PT) and stop loss (SL). I've been trading options with no predetermined PT and SL all these way.
If there is, ask about the magnitude of PT and SL. If the PT is less than SL, that's means you lose more. On the other hand, this means you always look for a PT that is more than SL. A rule of thumb: Look for PT > 150% SL (this means that you even breakeven when you lose 3 times and win 2 times), e.g. PT = 30 ticks/pips and SL = 20 ticks/pips.
3. Use less than 15% of your capital. If possible, use as low as 5%. This ensures you will not be 'emotionally' hurt when you lose. And you will not lose that much when you have consecutive loses.
4. It's ok to have a losing month once in a while. Actually, most successful trading strategies or systems tend to have an average of 2 losing months (within 1 years), based on my research.
It's your money, do take care of them!
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