Let’s face it, you could be the most talented trader in the world with a natural eye for investment opportunities, and still blow your account with one bad call without proper money management strategy.
No matter how good you are, or how experienced you are, you are still going to incur some bumps on the road. Even the best traders in the world face some difficulties- it is part and parcel of trading. That is why money management is so important to your trading.
You will be surprised to hear that one of the biggest reasons why investors fail is not knowledge or experience but is because they most probably don’t have an investment strategy.
Having a strategy means that you will be consistent in your steps. You would know how to get from A to C; you would have the exact steps showing you how to get there.
A winning strategy normally consists of two crucial elements:
- Controlling your emotions: If you have some experience in trading on demo and with real money, you probably can tell the big difference. When your money is involved, psychology plays a key part. Emotions like fear, greed, or excitement can stop you from sticking to your plan, creating potentially negative results.
As a general rule, it’s considered good practice to let your profits run and cut your losses early. Keeping your emotions in check and sticking to your trading plan can help with this.
- Money management: It’s a crucial part of your strategy that specifies the size of the position, the amount of leverage used, and any Stop Losses and Take Profit levels. Good money management is a vital part of trading successfully in the long term. It helps to maximize any profits while minimizing any losses. It also prevents you from taking too much risk.
So, if you are already planning your first move but have not created your investment strategy, I suggest you grab a pen and a piece of paper and start with that first.