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How to manage risk? Basics of Money Management

A trader’s goal is first and foremost to protect his capital and profits, not to make money. Making a profit in your next trade is not hard, but the only thing that will make you a successful trader in the long run is the ability to keep the profits.

All we have with trading is a statistical advantage, which will only show up in a series of trades. When starting to test a new strategy, it is always a good idea to stick to the rule of a minimum of 25 trades on which to apply the strategy, with a minimum volume. Each of these trades must meet all the conditions before we move on to live use.

Rules

Below we have written down some basic rules that are good to follow in the beginning and can save you a lot of money

  1. Do not risk more than 2% per trade
  2. No more than 5 open trades at a time
  3. Don’t buy stocks that correlate with each other, like GOOGL, AAPL, META… If Apple goes down, probably Meta will go down, etc. If you buy at 2% each of these stocks, it works out the same as if you bought at 6% one of them. The same risk applies to currency pairs that correlate with each other, stock indices and commodities.
  4. Have a predetermined risk (use clues)
  5. The risk should be less than the potential gain

We have the opportunity to work with hundreds of traders and how many times have we seen a person have a position bought for 50% of their account and some have had 100% of their money in one stock. These are the main reasons why these people are breaking records in the speed of deleting their accounts.

If you break your Money Management rules, you will never be profitable, no matter what your strategy. MM is one of the key things that will determine whether you will be profitable or not.

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