Understand Money Management in Derivatives Trading.
In the world of trading or investment, we often hear what is called Money Management, rather than derivative trading.
This time I will explain in detail how to understand and implement an effective money management system in the world of derivative trading.
Money management is a system used in trading so that we can keep the trading balance in good condition even when we experience losses.
I assume in the table below
| Days | Profit | Loss | Balance |
|---|---|---|---|
| Monday | +20$ | - | 1000$ |
| Monday | - | -10$ | 1000$ |
| Monday | - | -10$ | 1000$ |
| Tuesday | - | -10$ | 1000$ |
| Tuesday | +20$ | - | 1000$ |
| Wednesday | - | -10$ | 1000$ |
| Wednesday | - | -10$ | 1000$ |
| Wednesday | +20$ | - | 1000$ |
| Wednesday | - | -10$ | 1000$ |
| Thursday | - | -10$ | 1000$ |
| Thursday | - | -10$ | 1000$ |
| Thursday | - | -10$ | 1000$ |
| Friday | +20$ | - | 1000$ |
| Friday | - | -10$ | 1000$ |
| Days | Profit | Loss | Balance |
|---|---|---|---|
| 5 days | 80$ | 100$ | 980$ |
As can be seen carefully in the table above, within 5 trading days, there are several days when we trade more than twice.
And the accumulation of all of the total trading in 5 days is 14 trading times.
Then we compare it to the next table below.
| Days | Profit | Loss | Balance |
|---|---|---|---|
| Monday | +20$ | - | 1000$ |
| Monday | - | -10$ | 1000$ |
| Tuesday | +20 | - | 1000$ |
| Tuesday | - | -10$ | 1000$ |
| Wednesday | +20$ | - | 1000$ |
| Wednesday | - | -10$ | 1000$ |
| Thursday | - | -10$ | 1000$ |
| Thursday | - | -10$ | 1000$ |
| Friday | - | -10$ | 1000$ |
| Friday | +20 | - | 1000$ |
| Days | Profit | Loss | Balance |
|---|---|---|---|
| 5 days | 80$ | 60$ | 1020$ |
Well, what is visible is a significant difference in the amount of trading done.
On the second table, trading is very regular and measured, one day trading only twice, and assuming winning also in 4 days, it only takes 4 days to make a profit.
This is the use of money management in the trading system that needs to be considered.
From the example of the assumption above, you can see that the application of good money management requires the implementation of strict and unchanging rules, even in conditions of loss.
You can see on the day we suffered two consecutive losses on the second table. But the next day I still used trading only twice.
This is what is called proper financial management in the world of trading, and these rules are strict.
When this rule is broken, you can see yourself on the first table. What happens is a defeat, and you will get a loss.
Money management is a basic and very important foundation. When you break, what you feel is a loss.
Because what I understand is that trading is how we keep our money so that we can grow even if we lose.
Thank you, friend!
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You have given a nice post that helps one to manage losses and avoid revenge trading even when a loss is made.
However, you should improve on your markdown skills
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It is very important for we to learn how to manage money so as not to spend unnecessary. Nice post.