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Psychology Of Money Management
Friday, 18 September 2009 15:49 | Written by Ahmad Hassam |
Why money management is so boring? When many people hear the word money management, they start thinking, Why money management has to be so boring and not sexy. Its just this kind of behavior that gets average novice trader into trouble because they just dont understand the fact that risk analysis and money management is important in currency trading.
Why money management is so boring? When many people hear the word money management, they start thinking, Why money management has to be so boring and not sexy. Its just this kind of behavior that gets average novice trader into trouble because they just dont understand the fact that risk analysis and money management is important in currency trading.
Everyone wants to make money and a lot of money. At first glance, getting into a trade is thrill enough in itself. You seduce yourself into thinking that once you enter the trade, the currency market will do exactly what you want it to do and you will end up with a trade that can make you a lot of money. This is what most of the novice traders do in fact think.
For some reason or another market is not complying with the plan of making a lot of quick cash and is not going in the desired direction. Then all of a sudden it seems that the market is not at all cooperating. Instead, it is going in the wrong direction.
The trade couldnt go wrong in your opinion. It was a sure thing at that time. Now it has gone so far in the wrong direction that you may have difficulty in getting out. The gut feeling was so clear and compelling when you had entered the trade.
Where did you go wrong? What happened that changed everything? Do you know now that most of this evolution of a position gone bad has to do with you entering the market and risking real hard earned money without having a plan, a stop and a tested money management system before entry. What to do now?
Until we suffer a few losing trades to bring the concept home, most of us do not think it painful enough to change our thinking and take sound money management seriously. Now many of us have faced this type of a situation.
What is the psychology of risk control? The psychology of risk control sooner or later begins with genuinely believing that you will benefit from a risk control plan. When you have mastered your psychology, you will experience less anxiety in your trading and will be able to implement your trading plan more consistently.
You will reduce your level of stress and anxiety during trading by limiting your loss potential on each and every trade. Never ever risk more than 2% of your equity on a single trade. So the most you will lose on a single trade will be $200 if you have a $10,000 trading account. Think of it as getting a step closer to the winning trade instead of fearing a stop out when your trading system tells you that the trade has gone bad.
As you gain confidence in your money management plan, you will begin to see the profits increase. Your pride will increase from generating greater profits from each trade. That increased pride will make you more confident in your abilities to become a successful trader.
by AhmadHassam
Why money management is so boring? When many people hear the word money management, they start thinking, Why money management has to be so boring and not sexy. Its just this kind of behavior that gets average novice trader into trouble because they just dont understand the fact that risk analysis and money management is important in currency trading.
Everyone wants to make money and a lot of money. At first glance, getting into a trade is thrill enough in itself. You seduce yourself into thinking that once you enter the trade, the currency market will do exactly what you want it to do and you will end up with a trade that can make you a lot of money. This is what most of the novice traders do in fact think.
For some reason or another market is not complying with the plan of making a lot of quick cash and is not going in the desired direction. Then all of a sudden it seems that the market is not at all cooperating. Instead, it is going in the wrong direction.
The trade couldnt go wrong in your opinion. It was a sure thing at that time. Now it has gone so far in the wrong direction that you may have difficulty in getting out. The gut feeling was so clear and compelling when you had entered the trade.
Where did you go wrong? What happened that changed everything? Do you know now that most of this evolution of a position gone bad has to do with you entering the market and risking real hard earned money without having a plan, a stop and a tested money management system before entry. What to do now?
Until we suffer a few losing trades to bring the concept home, most of us do not think it painful enough to change our thinking and take sound money management seriously. Now many of us have faced this type of a situation.
What is the psychology of risk control? The psychology of risk control sooner or later begins with genuinely believing that you will benefit from a risk control plan. When you have mastered your psychology, you will experience less anxiety in your trading and will be able to implement your trading plan more consistently.
You will reduce your level of stress and anxiety during trading by limiting your loss potential on each and every trade. Never ever risk more than 2% of your equity on a single trade. So the most you will lose on a single trade will be $200 if you have a $10,000 trading account. Think of it as getting a step closer to the winning trade instead of fearing a stop out when your trading system tells you that the trade has gone bad.
As you gain confidence in your money management plan, you will begin to see the profits increase. Your pride will increase from generating greater profits from each trade. That increased pride will make you more confident in your abilities to become a successful trader.
About the Author:
Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading stocks and currencies. Develop your own Forex Trading System. Get Netpicks Forex Signals Free!