The first and most important part of managing a trade is to manage the money… Money management is the single most important factor that will determine whether you become a successful trader, period.

If you think the system is the most important thing about trading, you are horribly wrong! Understanding the basics of money management is what will make you a long term successful trader. Even a bad plan can be successful if you have good money management skills but a good system will inevitably fail if bad or no money management is used!

There are two rules rule to follow to be a successful trader:

Rule # 1: Limit your losses.
Rule # 2: Don’t forget rule number one

The amount you risk on any particular trade is one of the few things you can control. There are numerous books on money management and it is not my intention to go into details about it here but let me give you a few pearls of wisdom I’ve learnt the hard way!

-First objective is to preserve your capital. Risk as little as you can.

-Keep your risk between 1-5%

-Expect losses. They are part of the job

-Don’t let your emotions get in the way

-Only trade if your risk ratio is 3:1 or higher

-Get rid of your losers quickly and let your winners run!

Bottom line here are the big three:

• Risk as little as possible
• Stick to winning trades ( if it doesn’t go your way, get out of the way!)
• Take on trades with the highest profit ratio possible….

First we will look at Stop losses