Never under estimate the role money management plays in trading the financial markets in general. When i say general, i mean FOREX, binary options, crypto-currency, sports trading e.t.c. A lot of traders focus majorly on strategies and give less attention to money management.
I have seen a lot of trading accounts crash over the years due to the ignorance of money management. When new bees lay their hands on a good trading strategy, they get ecstatic and fail to understand that there’s no strategy on this planet that wont go through the face of draw-down. If you do not know what draw-down means, i will break it down for you in simple terms. Draw-down refers to the maximum loss your account experience before recovering back to break-even or profit.
No trader in the financial markets can escape the terrible phase of draw-down and when this happens(as it surely will), your money management is going to be your saving grace! Do not let anyone deceive you by over leveraging your account due to how competent a strategy or system works.
A strategy that has been performing remarkably since June 2017 to April 2018, with an astonishing 200% monthly return on investment with a maximum draw-down of 30% turn soar at May 2018 with series of loosing streaks, ten loosing streak to be precise. Can you imagine that? You have been raking profit month in month out for almost a year with a particular system, i can imagine how one’s self-confidence and esteem would have been on fire. Infact you will feel invisible with the market and would surely be tempted to over leverage your account. Please do not fail bait for any strategy in the world of trading if you do not want to bite your finger!
Always be prepared for the worst in trading any form of financial market. No matter how good and profitable a strategy seems to be, never loose guard by over leveraging your account. You can get hit by the market the day you least expect. Always stake 1-2% of your capital per trade to be on the safer side. If you want to make this a serious business, then you have to invest pretty well (only when you have discovered and mastered a good trading system).
I have observed most of the financial market gurus do not realize more than 120% annual return on investment. Sure you will be wondering how can you survive with such ROI? Well my friend you need to invest heavily, these dudes trade in millions so they do not need to make 200% ROI monthly like every other trader. Suppose you are trading with a hundred thousand dollars and you are averaging 10% ROI every month (that’s ten thousand dollars), isn’t that cool? Look deeply into the example i gave above with a strategy averaging a ROI of 200% monthly for 11 months and then having a loss of one month, that’s still a profit at the end.
This is why using a constant stake or lot size for a very long period of time in trading is very helpful. I personally advise using a particular lot size or stake for nothing less than 6 months or worst case every 3 months and do not hesitate to withdraw profits constantly.
NB: Set your account into twenty loosing streaks and do not be in a haste to get rich over night. Do not attach emotions and watch your account grow over time!