Money management is where traders make their biggest mistakes when beginning their trading careers. Not using stops on every trade, risking large amounts, and overtrading are some of the biggest mistakes newer traders make. We're going to address these issues and share trading rules to conquer those mistakes.
Let's use a story about a hypothetical trader named Bob. Bob just started trading and recently found some new indicators that are extremely accurate at picking turning points in the market. Bob knows that he should use stops on all of his trades. The problem Bob is having is that when he uses stops, he seems to get shaken out of all his trades. It feels like he's always getting stopped out even though he is correct about the direction of the market. Bob decides that he's going to start making trades but not use his stops.
Bob is also struggling with how much he should risk on each and every trade. He knows he should limit his risk to a fixed percentage of his account value. At the risk percentage that he is supposed to use, he feels that his account is growing very slowly. Bob seems to find excitement in the markets only when he is overleveraging himself. Instead of approaching markets in a systematic away, he begins a dangerous spiral into gambling. His need for excitement outweighs common sense and rational thought.
Bob also finds himself moving from one instrument to another. He knows he should stick ...