Capital management in trading is one of the most important factors that determine a trader's success or failure. Here are the most prominent methods and common strategies for effectively managing capital:
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1. Determine the risk percentage for each trade
Do not risk more than 1-2% of your capital on a single trade.
Example: If you have $10,000, do not risk more than $100-200 in the trade.
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2. Use Stop Loss orders
A fundamental order to minimize losses and prevent significant drawdowns in capital.
The stop loss should be calculated based on technical analysis and not randomly.
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3. Set a profit target (Take Profit)
Helps to secure profits before market reversals occur.
The risk-to-reward ratio (e.g., 1:2 or 1:3) can be used to determine targets.
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4. Diversify and allocate capital
Do not invest all your capital in a single trade or market.
Distribute trades across multiple pairs/assets to reduce risks.
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5. Accurately calculate the lot size
The lot size should correspond to the capital and stop loss.
Use online lot size calculators to achieve this.
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6. Avoid overtrading
Do not enter too many trades in a short time.
Wait for well-studied opportunities only, and stick to your plan.
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7. Continuously update your money management plan
Review your strategy periodically and update it according to market performance.
Do not stay at the same ratio and risk if your experience has increased.