Money Management
The rules for how much of your account you put on each trade, so a bad run can't wipe you out.
Money management is the boring part of trading that keeps you alive. It answers questions like: how much will I risk per trade? How much can I lose in a day before I stop? How big should my position be? A common starting rule is to risk only a small slice of your account, often 1–2%, on any single idea.
Here is why it matters. Lose 50% of your account and you need a 100% gain just to get back to where you started. Good money management makes sure no single trade, or streak of trades, can dig a hole that deep.
The 1% rule
- Your account holds 5,000 dollars.
- You decide to risk 1% per trade: 50 dollars.
- Your stop-loss is 25 pips away, so each pip can be worth at most 2 dollars.
- That works out to 0.2 standard lots (2 mini lots).
Bottom line: If the stop gets hit, you lose 50 dollars and still have 4,950 to keep trading.
Doubling your size after a loss to "win it back fast". That is how small holes become craters.
Keep this word for good
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