CHAPTER
15
Setting Risk Parameters and Making a Money Management Plan
It’s easy to tell someone he should make a money management plan; the hard part is getting him to make one. But if you take the time to do this important thing, becoming a winning trader will become much easier. A money management plan doesn’t have to be elaborate, but you should have some kind of guideline to keep you financially on track. When you make a money management plan, you will establish your risk parameters, and will know how much you can afford to lose, how much to risk, how many contracts to trade, and when to increase trading volume. This chapter should help a trader learn what goes into and how to make a money management plan. It may repeat a few things from the last chapter, but you’ll remember the material better that way.
MAKE SURE YOU ARE PROPERLY CAPITALIZED First and foremost, make sure you have enough capital to trade with. Trading with insufficient funds makes it hard to succeed because it is impossible to set good risk parameters when you don’t have money. It becomes the norm to put on positions that are too large when you are undercapitalized. Some small traders feel that if they have enough to make a trade, they are properly capitalized. They may be always using their capital to the max simply because they have no other choice. The fact that you have enough Copyright 2003 by Marcel Link. Click Here for Term of Use. www.rasabourse.com
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