Sound Money Management takes the Emotions out of your Trading
We frequently ask why many newbies seem to do the best they can to shed as much cash as possible in virtually no time. We all were newbies before and so was . The main reason I burned my hard earned actual work cash with my very first accounts was, well, I attempted to create as much cash as possible... in no time as well.
Always know precisely how much money will be lost (or earned) using a transaction that you earn. With the very first accounts I never knew really. I was excited of making lots of cash if the market just moves the way newbie Peter believed it would.
When it didnt I saw the minus growing and developing, panicking with each additinal red pip coming. When a position stopped out and one quater of my account was gone I sought revenge! ... and lost again.
If you lose a large quantity of your account to get one trade (or win, it doesnt matter), you'll become very emotional about. Either seeking revenge or to create even mooore.
So always know how much money you are going to lose if a trade stops out and always make sure that if it falls, it won't matter because it isn't going to touch over 2.5 to 5% of your account. Otherwise you'll freak out, trust me. With cash management, even when the first 10 transactions fail you will still have sufficient equity left to learn from your failures to adjust your egy.
Should you risk too much per trade, trust me you'll freak the hell out when the market goes the other way. And then you're in a spiral of emotions that isn't going to make one of these sustainable traders that constantly reserve profits.
I hope this helps some of you as I heard this lesson quite late. I always thought money management would be soely about chances and maths when it is in fact about trading peacefully, professionally, and, profitably at the end! So be careful, develop your egy and forget about getting rich fast. Making some safe additional cash each month is awesome too!