Money Management

Trading is a risky business. Trading offers us the potential to make decent money but requires us to expose our money (trading capital) to calculated risk. When we put on a trade we would not know what is going to happen. We could be right or we could be wrong. There is no fool-proof method which can guarantee 100% certainty. It is therefore very important not to lose too much when we are wrong.

The general money management rule is we should not risk more than 2% of our trading capital on a single trade. Risk even less to 0.5%-1% if you can. This is the advice given by most trading books.

I think this is a very wise advice since by risking less we would feel comfortable, which is very important when trading. We would feel more courageous to put on a trade when we are not risking too much. Even though we are good with analysis (fundamental or technical) to identify high probability trading opportunities, we need to act on our analysis to benefit from it. I'm sure you may have experienced the uncomfortable feeling of missing out on a good trade although you saw it coming because you have not acted on the trade set-up.

How much money do you need to trade? I think a good starting point is RM20K but a comfortable level is RM40-50K.

Disclaimer:

Trading and investment involves risk, including possible loss of principal and other losses. I shall not be responsible for any losses or loss profit resulting from trading or investment decision based on my posting and information presented in this blog.