About money management and the trading roller coaster

This post is absolutely not for experienced traders, absolutely not.

What about money management! What about trading Forex! what are you going to expect from it?

What is the correct setting of the money management what are your risks?

In the previous post I talked about the psychological implication leading you to a spiral of over implication. That is a threat. In order to mitigate the risk you need to aknowldege it. OK enogh for that.

Again what about money management!

In other posts (I do not remember where) I talked about trading with low leverage and having realistic objectives in mind (20 % annual return of capital is considered a big success). Howerver with an average retail account of 2000 $ that makes 400 $ per year and it is really not worth the efforts.

You need much bigger accounts 10 000 $ looks like a minumum, and again it is doubtfull to entertain a family in the civilized workd with 2000 $ pear year. That makes 166 $ monthly income, and you will be very confortable if you live in the basement alone in perfect harmony with the rats and eating junk food.

And imagine you loose your capital what is going to happen? Nothing nice anyway.

OK but if you trade you are going to trade in the risky way, hoping to make 10 000 per month at least. What is going to happen? Some are going to make it of course but considering you the statistical average guy the law of the statistics are going to apply to you and you are going to loose it.

All the 10 000 are going to go into the bank account of the bucket shop operator who on many occasions will not cover your positions on the market.

No really the chances are against you.

On one hand it is really not worht the effort to apply reasonable money management on a relatively acount on the other hand risking the same account (considering it not as small) is going to be a disaster for the small retail newbie trader.

Really it looks like a trap isn't it?

I talked on that on many occasions with friends. It looks like nobody is interested into something making 10 % per year. People are interested in 200 % per month. The alchemy of making amazing money from money is exactly the same as making gold from other metals.

No really I want to tell you from the start what I think. Consider this only if you like the process, not the results.

Well what to do?

One of the things that most people do is taking a small account and trading really risky? Is it against correct money management. I do not think so provided it is a small capital you risk like crazy.

The rules about money management consern your entire capital. It is all relative. Consider you have 10 000 as trading capital. A conservative money management (it is much more complicated than that) would say not to risk more than a fraction of this capital, let say 5 % (that makes 500 USD).

So what, imagine you have 500 USD how you are going to trade depends entirely on your perspective, it is different if those 500 USD are your entire trading capital or they are 5 % of your trading capital.

Many experienced traders open 500 USD accounts and they trade like deamons from hell risking crazy, but if you consider that 500 USD is just 5 % of your entire capital the perspective is different.

I have seen how a trader turns 50 $ into 2500 $ in 8 hours. Ask musketeer he was a testimony. However this is financial alchemy and happened only once.

So most of the trading hobbyists are doing exactly that using small accounts and hoping that they will make the BIG gain, that is cools and everybody that makes that is the short lived start on all the forums.

So what is money management? What do you expect? I believe you expect to make the big profits, eah I know there is something magic to open one lot and to see how in 5 minuts you make 200 USD. I know and that is a big temptation.