Money management is the most important for a
trader that have a role about 30 % the success of trader in the market and the other is the
psychology of trading which has 60% shares of the success
for trader . The purpose
of money management is to minimize losses and increase of profits as well as
adding the ability to survive for a traders.
In theory, That is very easy when we
make a spreadsheet of money management strategies that will be implemented in
trading . But in practice it is not easy to do because there are so many factors
that can give affect for a trader and one of the
most important factors is the psychology of trading .
Applying Money Management Strategy requires a
high level of patience because the great results in just one trade has been never implemented in a
good money management . Money Management is always prioritize security of trading funds than just
a huge instant earning in one order.
In general there are several trading
strategies developed by professional traders and in this article I will explain the types of money management
strategies are often used by traders as follows :
1 . Martingale
In this strategy the trader always tries to
double the lot size in two times larger than the last lot size . so when traders suffered
loss onetime, trading loss
will be offset by profit in the next order or even trading account balance will be turned
into profit. But on the other hand you're just doubling the risk that you
will receive from your open position before so chances for you to run out all of funds is very large. Therefore, this technique is not recommended
for beginners because they needed a very high accuracy analysis to anticipate greater
losses .
Example of setting lots with martingale
strategy as follows :
As seen in
the table above the trading lot is always duplicated each time losing position
so that all losses would be covered at the next profit position even seem at
the end of the table profit position has covered all of the losses suffering by
the trading account before. But what if the position has never experienced for a
profit? Here's an example:
As seen
above in just 4 times loss trade has
been almost more than half of the capital you have loss. Therefore , as already
mentioned above that the sharpness of analysis is needed here to anticipate
continuing losses until you experience a margin call .
2 . Anti -
Martingale
Anti -
Martingale is a trading strategy that is applied opposite to the martingale
strategy. Anti Martingale is a strategy that almost same with martingale in
duplicating trading lot but the strategy will applied when trader profit not in
loss . Then The risk of trading will be increased because the capital strength
has increased from the profit earned previously . So you do not have to worry
about the loss because Trader has calculated the amount of loss and will not
exceed from your trading capital, that is where the advantage of this system is
to maximize profit but still count on the loss risk that will occur in order to
not exceed the capital owned previously . The following table is an example of
the use of anti martingale strategies :
As you can
see in the table above that each time a trader profit the lot size is always
increased from the previous two times. You need to understand that the table above
just explains when you always profit but
how if you are in a losing position. Look at the illustration in the table
below :
When you
experience a loss of trading lot size is reduced to 50% from the previous lot
size so that large losses can be minimized. I think this is enough for
explaining Money Management Strategy through this article and I hope this may
help you in understanding the importance of money management in your trading.
No comments:
Post a Comment