Stock Indices Trading Account Management
The best way to practice successful stock indices money management in Stock Indices Trading is for an investor to keep losses lower than the profits they make. This is called risk to reward ratio.
Stock Indices Trading Account Management Methods
This method is used to increase the profitability of an investment strategy by trading only when you have the potential to make more than 3 times more than what you are risking.
If you invest using a high risk reward ratio of 3:1 or more, you significantly increase your chances of becoming profitable in the long run. The Chart below shows you how:
In the first stock indices example, you can see that even if you only won 50% of your stock indices trade transactions in your stock indices account, you would still make a profit of $10,000.
Even if your win rate went lower to about 30% you would still end up profitable - Stock Indices Trading Account Management Principle - Stock Indices Trading Money Management.
Just remember that whenever you have a good risk to reward ratio, your chances of being profitable as a stock indices trader are much greater even if you have a lower win percentage for your stock indices strategy.
Never use a risk to reward ratio where you can lose more pips one stock indices trade than you plan to make. It does not make sense to risk 1,000 dollars in order to make only 100 dollars.
Because you have to win 10 times which to make the 1,000 dollars back.
If you ONLY lose once you have to give back all your stock indices profits.
This type of investment strategy makes no sense and you will lose on the long term.
Stock Indices Trading Account Management Methods
The percentage risk method is a method where you risk the same percentage of your account balance per transaction - Stock Indices Trading Account Management Methods.
Percentage risk based method says that there will be a certain percentage of your stock indices account equity balance that is at risk per trade. To calculate the percent risk per each stock indices trade transaction, you need to know two things, the percentage risk that you've chosen and lot size of an open stock indices order so as to calculate where to put the stop loss stock indices order. Since the percent is known, we shall use it to calculate the lot size of the stock indices trade order to be placed in the stock indices market, this is known as position size.
If you have an account balance of $50,000 in your stock indices account and risk percent is 2%
Then 2 % is equal to $1,000
Other factors to consider include:
Maximum Number of Open Stock Indices Trade Positions
A final point to consider is the maximum number of open stock indices trade positions that is the maximum number of stock index trades that you want to be in at any one given time. This is another factor to decide when managing stock indices account capital.
If for example, you chose a 2%, you may also say chose to be in a maximum of 5 stock indices trade positions at any one given time. If you open 4 trade positions and all 4 of those positions close at a loss on the same day, then you would have an 8% decrease in your account balances that day.
Invest Sufficient Capital
One of the worst mistakes that investors can make in stock indices is attempting to open a stock indices account without sufficient capital.
The stock indices trader with limited capital will be a worried investor, always looking to minimize losses beyond the point of realistic trading, but will also be frequently taken out of the stock indices trade transactions before realizing any success out of their stock indices strategy.
- Exercise Discipline
Discipline is the most important thing that a stock indices trader can master to become profitable. Discipline is the ability to plan your work and work your plan.
It is the ability to give a stock indices trade the time to develop without hastily taking yourself out of the stock indices market simply because you are uncomfortable with risk. Discipline is also the ability to continue to stick to your stock indices plan even after you have suffered losses. Do your best to cultivate the level of discipline required to be profitable.
Stock Indices Trading Account Management Basics
stock indices money management, is the foundation of any stock indices system as it helps investors to improve their chances to get profit trading on the stock index market. It is especially important when transacting in the stock indices leveraged stock indices market, which is considered to be probably one of the more liquid financial market but at the same time one of the riskiest.
If you want to invest successfully in the stock indices market you should realize that it is very important to have an effective stock indices strategy of stock indices money management because you will be using stock indices leverage to place your stock indices orders - Stock Indices Trading Account Management Basics.
The difference between average profits and losses should be strictly calculated, the profits on average should be more than the losses on average when trading, otherwise stock indices will not yield any profits. In this case an investor has to formulate their own stock indices account management rules, success of each person depends on their individual traits. Therefore, every investor makes his own stock indices strategy and formulates their own stock indices money management guidelines based on the above guidelines.
When you are placing your stock indices orders put your stop loss stock indices orders in order to avoid huge losses. Stop loss orders can also be used to lock in profit.
Consider the chance to get profit against chance to get loss as 3:1 - this risk: reward ratio should be favorable more on the profit side.
Considering these stock indices rules and guidelines, you can use them to improve profitability of your stock indices strategy and try to develop your own stock indices strategy that will possibly give you good profits when trading with it.