Money Management

Money management means how you allocate and manage your capital. It is about how many contracts you do on each particular trade. It is about how and when you take profits or losses.

The most important rule in money management is survival. Because if you do not survive, you cannot continue to play.

It is absolutely essential you always know how to give up on a losing position. No position is worth getting wiped out for, there will always be another trade.

When deciding how many contracts to buy/sell, avoid going above your comfort level. When you are positioned too heavily, it is easy to get frightened out prematurely. Given a choice it is better to be less rich than poor.

Take smaller positions when you are even or a net loser. Take larger position when you have profits.

If you are substantially ahead, take some money out of your account.If you ever become aware that you are stuck in a market and it is hard to take a loss because it too big for you, there is only one intelligent action you can do: JUST GET OUT immediately at market price.

If you get into a losing streak, quit trading for a few days, rest, do something nice for yourself, read a book and resolve tougher. Once you feel you are ready, resume trading as if it is your first trade.

-          Source ‘Intelligent futures trading’ by Chick Goslin