Developing a trading strategy is one of the most important aspects to become a successful trader. Many people focus more on generating grand returns and the end result of their strategy, rather than all the essential measures it should contain throughout though. Yet money management matters in any trading strategy. Plenty of traders are no doubt aware of this, but a lot choose to ignore it or learn through tough lessons. Here’s why you need to pay attention to money management when developing your trading strategy.

Remove Emotions from Trading

Trading anything from forex to stocks and shares, commodities and more can quickly become an emotional endeavour. Once you start, it can be hard to take out your emotions from the thrill of trading. If things are going your way it can be hard to know when to sell for a profit, while if the opposite is happening you might want to hold on in hope that they’ll turn around.

Setting stop losses and limit orders are important for this and form part of a strong money management strategy. Good money management can reduce stress and help you become more profitable when using ATC Brokers, as you shouldn’t sell too early based on fears, for example.

Control Risk

Whatever assets you are trading, risk plays a highly influential part and it’s therefore vital that you control it as best you can with strong money management. The level of risk used needs to be realistic in terms of potential success and again, stop losses and limit orders should be used to reflect this.

Surprisingly, around 20% of traders use no form of risk management, and while some may get away with it, the majority don’t. Good money management informs you how much you can risk on each trade or day, adding up successes and losses to adapt this by the time the next trading opportunity arrives.

Money Management Styles

Much like there are different trading styles, various money management approaches exist. There are two main strategies that are adopted:

  • High frequency, small stops to make large profits from the few successful trades
  • Infrequent, large stops so that the small profits should outweigh the few large losses

Choosing a money management style most appropriate to you will largely depend on how much you’re willing to risk. Both styles can be profitable when executed well, you just need the confidence to stick with them.

Money management is an essential cog in any trading strategy and something well worth spending time on to get it right.