Lesson 7. Capital Management, or “How to Not Drain Your Deposit”

In this lesson, we will address the following questions:

1. What is Money Management?
2. The Fundamental Principles of Money Management

1. What is Money Management?

Every trader has experienced the bitterness of losses at least once. In situations like that, grandiose plans are often replaced by a single thought – how to not further drain your deposit.

Turning a profit with trading is based on accurate predictions, as well as psychology and money management. To be successful, you must skillfully combine all three elements.

It is also important to develop a plan for proper management of capital, as the purpose of a plan is to preserve and increase your money. Proper capital management will steer you away from trades that can turn you off to the idea of trading altogether.

2. You should always follow the basic principles of money management:

Principle 1: Proper Transaction Amounts

If you want your trading to be profitable, then all you have to do is develop a trading plan and follow it carefully, as it will help minimize potential errors. You should first think about the size of the deal to open.

Remember that the invested amount should never exceed 2-3% of your total deposit. Some traders try to hit the jackpot by investing all of their capital at once into something that looks promising. In most cases, this does not end well.

By following this simple rule, you will be able to stay in the market and continue trading even if you lose. By adhering to 2-3% per trade, your risks will be minimized even with a series of failures. If you open several deals at once, then their total volume should not exceed 5% of your total deposit.

Trading is a tedious and meticulous job, not gambling at a casino. Sticking to the rules maximizes your chances of making a profit.

Principle 2: What Not to Do

Never try to win back lost funds. Don’t panic.

Principle 3: The Golden Rule

The golden rule of financial management is that in order to receive stable profits from trading assets, you must take small losses and allow profits to grow. This is easy to say but hard to do, and it is achieved through long and hard work. Over time, you will have accumulated enough experience to find the best time to sell and buy assets.