Trading can be a lucrative business, but without careful money management, even the best strategy will end in losses. Money management (risk management) is the invisible pillar that separates long-term traders from fleeting amateurs. Here's a practical guide to mastering this essential discipline.
### **1. Define your risk per trade**
The golden rule: **Never risk more than 1% to 2% of your capital on a single trade**.
- **Example**: With a portfolio of €10,000, your maximum risk per trade is €100 to €200.
- **Why?** This limits the impact of a losing streak. Even with 10 losing trades in a row, you retain 80% of your capital.
⚠️ **Trap to avoid**: Increasing risk to "recover" losses. This is the best way to go broke.
### **2. Calculate Position Size Accurately**
The size of your position depends on the distance between your entry point and your **stop-loss** (loss limit).
- **Formula**:
`Position size = (Capital × Risk per trade) / Stop-loss distance (in pips or %)`
- **Example** :
- Capital : 10 000 €
- Risk per trade: 1% = €100
- Stop-loss distance: 50 pips (0.5% on a stock)
- Position size = €100 / 0.5% = **€20,000** (controlled leverage).
📊 **Useful tools**: Position size calculators (available on TradingView or MetaTrader).
### **3. Mandatory stop-loss: your anti-catastrophe insurance**
A stop-loss is a **non-negotiable line of defense**.
- **Functions**:
- Limit losses.
- Avoid emotional decisions (“What if the market rebounds?”).
- **Good practices**:
- Place it according to technical analysis (support/resistance level).
- Never move it to "give the trade a chance".
💡 **Tip**: Use a *mental stop-loss* if you trade without an automated platform, but stick to it strictly.
### **4. Risk/Return Ratio: The Key to Profitability**
A good trade offers a **minimum ratio of 1:2** (risk 1 to win 2).
- **Example** :
- You risk €100.
- Your winning goal is €200.
- **Consequence**: Even with 50% winning trades, you remain profitable.
🎯 **Objective**: Aim for ratios of 1:3 or 1:5 on the most convincing setups (strong trends, clear chart patterns).
### **5. Diversification and adaptation to market conditions**
- **Diversify**: Spread your capital across multiple assets (crypto, forex, stocks) to avoid "concentration risk".
- **Adapt**: In times of extreme volatility (e.g. geopolitical crises), reduce the size of your positions.
⚠️ **Practical case**: During a stock market crash, a trader reduces his risk per trade from 2% to 0.5% to avoid erratic movements.
### **6. Trading Journal: Your Best Coach**
Systematically note:
- The reasons for the trade (technical/fundamental analysis).
- The risk taken and the result.
- Mistakes made (e.g. ignoring an oversold signal).
📖 **Benefit**: Identify your winning patterns and correct weaknesses.
### **7. Emotional Management: The Invisible Battle**
- **Avoid revenge trading**: Don't double down on your bets after a loss to "get even."
- **Stay disciplined**: Stick to your plan even during phases of excessive gains (euphoria often leads to irrational risk-taking).
**Q: What if I only have a small amount of capital?**
→ Use micro-lots (0.01 lot in forex) and stick to the 1-2% rule. Growth will be slow, but sure.
**Q: How do I manage trading fees?**
→ Factor them into your risk calculation. On Binance, favor high-volume peers to reduce spreads.
**Q: Should money management be adjusted when scalping?**
→ Yes: When scalping (ultra-short trades), reduce the risk to 0.5% per trade to absorb costs and market noise.
**In conclusion**, money management is not an option, but an obligation. As legendary trader Paul Tudor Jones said: "The secret to surviving in trading is to protect your capital… Everything else is secondary."📉➔📈
To go further, train yourself using trading simulators to test these rules without risk.
