Traders & investors dedicate a significant amount of time studying and mastering new trading techniques, trading strategies, and approaches to the market. However, only a few spend the equal amount of time to learn proper money management.
Money management is the most ignored and overlooked aspects of trading and at the same time is one of the key cornerstones that form part of a successful trading career.
Technical Money Management
The majority of traders focus most of their time on technical analysis to forecast price movements, trends, and find the high probability trades. Therefore their technical analysis is directly associated to their money management and risk mitigation strategies.
The combination of professional technical analysis and strict money management can substantially enhance the chances of reaching growth in your trading career.
The Basic of Applying Technical Money Management
The information obtained through technical analysis can be an excellence guidance and a roadmap to where price may go next. This information can only become useful by combining it with other trading skills such as risk assessment, money management, and flawless trading execution.
Several technical analysis techniques may be utilized to reduce your losses and increase your portfolio's earnings. In the next few illustration, I will be using Fibonacci retracement to act as support and resistance levels as well as to show you the risk and reward management by using this technique.
This is a 6E Futures (EURUSD) chart for today. The first buy opportunity came at 10:40am this morning (The double bottom formed). If you are early enough to buy that NT2 signal, your risk is 6 tics vs 21 tics profit. If you have missed this, the next opportunity came at 4pm when Europe market open. Price retrace back and formed a Hammer buy signal. Since you have the Fibonacci retracement as your entry and exit guide, you will buy limit at 74, you will now risk 7 tics vs 20 tics profit.
This is Nikkei 225, this is also today's chart. Can you tell this is a Head and Shoulder Pattern?
Once we identified the Head, which is the Shooting Star signal happened at 8:40am, your risk is 7 tics vs 17 tics profit. If you have missed the first short opportunity, your next entry would be your right shoulder (@ 9:40am), which you will now risk 6 tics vs 12 tics profit.
Filtering High Probability Trades from Low Probability Trades
A successful traders understand that to be a successful trader, only chose to take the best trades with the highest probability of success.
Filtering the quality of all the trades that are planned and taken into a trader's account is one of the quickest routes to become profitable and especially when doing it with consistent.
The consistency of profitability becomes very powerful as you continue to grow your account, consistently overcome the draw down period, and follow a strategy that focus on capital appreciation with controlled exposure to market volatility.
Adding Technical Money Management to your Trading
Technical money management can help traders to improve their trading by simply applying the same technical skills and analysis they use daily but with a risk control oriented approached. The use of effective and well calculated money management is crucial for taking one's trading career to a whole new level and becoming a better trader.