Indices Trading Money Management Styles and Methods in Indices Trading
Best way to practice successful indices trading money management in Indices is for an investor to keep losses lower than the profits they make. This is called risk to reward ratio.
Stock Indices Account Management Methods
This method is used to increase the profitability of an investment strategy by trading only when you've the potential to make more than Three times more than what you're 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. Indices Chart below shows you how:
In the first indices example, you can see that even if you only won 50% of your 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 - Indices Trading Account Management Principle - Indices Trading Money Management.
Just remember that whenever you have a good risk to reward ratio, your chances of being profitable as a trader are much greater even if you have a lower win percentage for your indices trading strategy.
Never use a risk to reward ratio where you can lose more pips one indices trade than you plan to make. It doesn't make sense to risk 1,000 dollars in order to make only 100 dollars.
Because you've to win 10 times which to make the 1,000 dollars back. If you ONLY lose once you have to give back all your indices trading profits.
This type of investment strategy makes no sense & you will lose on the long term.
Stock Indices Account Management Methods
The percentage risk technique is a method where you risk the same percent of your trading account balance per transaction - Indices Trading Account Management Techniques.
Percentage risk based method says that there will be a certain percentage of your indices trading account equity balance that is at risk per trade. To calculate the percent risk per each 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 indices trade order to be placed in the stock indices market, this is what's known as position size.
Example
If you have an account balance of $50,000 in your stock indices trading account and risk percent is 2%
Then 2 % is equal to $1,000
Other factors to consider include:
Maximum Number of Open Indices Trade Positions
A final point to consider is the maximum number of open indices trade positions that is the maximum number of stock indices trades that you want to be in at any one given time. This is another factor to decide when managing stock indices trading account capital.
If for examples, you chose a 2 %, you may also say chose to be in a maximum of 5 indices trade positions at any one given time. If you open 4 trade positions & 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 which investors can make in indices trading is attempting to open a indices trading account without sufficient capital.
The indices trader with limited trading capital will be a worried investor, always looking to minimize trading losses beyond the point of realistic trading, but will also be frequently taken out of the indices trade transactions before realizing any success out of their indices trading strategy.
- Exercise Discipline
Discipline is most important thing which a trader can master to so as to become profitable. Discipline is the ability to plan your work and work your plan.
It is the ability to give a 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 indices trading plan even after you've suffered losses. Do your best to cultivate the level of discipline that's required so as to be profitable.
Managing Account Capital Basics
Indices trading money management, is the foundation of any indices system as it helps investors to improve their chances to get profit trading on the stock indices trading market. It is especially important when transacting in the indices trading leveraged stock indices market, which is considered to probably be one of the more liquid financial markets but at the same time also one of the riskiest.
If you want to invest successfully in the stock indices trading market you should realize that it is very important to have an effective indices trading strategy of indices trading money management because you will be using indices trading leverage to place your indices orders - Indices Trading Account Management Basics.
The difference between average profits & losses should be strictly calculated, the profits on average should be more than the losses on average when trading, otherwise indices trading will not yield any profits. In this case an investor has to formulate their own indices trading account management rules, success of each person depends on their own individual traits. Therefore, every trader makes his own indices trading strategy & deveop their own indices trading money management rules based on the above guidelines.
When you are placing your 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 indices trading rules and guidelines, you can use them to improve profitability of your indices strategy & try to create your own strategy that will possibly give you good profits when trading with it.
