You should only risk a fraction of your money in any trade!
Before I continue, you should never risk any money
that you can’t afford to lose!
If you do, you’ll be left emotionally drained which is a losing frame of mind for trading
I want you to sleep easy knowing that your trading
activity is calm, exciting and lucrative!
This game is about consistency and as long as your winners outweigh your losers, your portfolio will rocket in the medium to long term.
Never risk more than 2% of your portfolio in any one trade
Many novice traders who come into the market, blow their trading
account to smithereens.
This happens simply because they’re not aware of the essential money
management rules that they need to keep their portfolio balance afloat.
Well, with this rule you could save your trading
account from ever having to experience that!
It's a rule I've been following for over a decade, and has helped my portfolio stay on a consistent uptrend.
Break the rule and you’ll break your account!
Let’s say you have a portfolio account of R10,000 and you use the 2% rule.
The first thing to note is you’ll only be risking R200 per trade.
With high probability trades, you should not risk more than 2% of your portfolio in any one trade!
To prove it, let’s say on average you’re willing to risk 7% of your portfolio in any one trade.
This is all fine and dandy if you’re only making a loss every now and again.
But with any unpredictable market (where millions of rands are traded per day), you’ll never know when you’ll experience a few consecutive losing trades!
If you take a 7% loss per trade and you take seven trades, you’ll blow 49% of your portfolio just like that!
Now in any business, 49% downside is not good, but there are ways you can minimise your risk.
All you do is limit your losses by 2% per trade.
Now you might be thinking “by risking so little, my gains will be too small to grow my portfolio”.
But if you do the math, essentially you’ll only risk 14% of your portfolio if you took seven losing trades.
This is a lot easier to handle than losing a 49% chunk of your portfolio. This is simply the reality of trading
Keep at it and I promise you over time, with winners and losers, you’ll see your trading
portfolio flying to new highs!
So, keep to the 2% rule and you’ll keep your losses to an absolute minimum.
If you'd like to be an even more successful trader, then Trading Tips
could be the answer for you!
Click here for more!
“Wisdom Yields Wealth”