The smart money management traders that I am aware of tend to be excellent planners. They understand that trading is a game of probabilities. They know how to keep the odds in their favor. These traders incorporate money management, price action, resistance and support into their strategies, in order to achieve positive results from their trading. That doesn't imply that they are always right. It is impossible to always be perfect whether it comes to trading or any other type of business.
When it comes to trading, losing and winning are two sides of one coin. I have personally experienced this myself. There are certain times when I have experienced profits streaks on 20 to 25 trades. Then I have also experienced bad trading days, or even weeks at a time without earning any profits. These types of situations are common for all traders. Time doesn't differentiate between institutional traders and retail traders. Even managers of multi billion dollar hedge fund are not immune to these types of situations.
Wise money management involves investing the appropriate amounts on each trade (which refers to risk management), and also involves knowing how to manage a winning trade from the beginning to the end. That is a critical aspect of any solid trading method that is frequently overlooked by both expert and beginning traders.
One of the most frequent questions that traders ask if what should I do after I have entered a trade and it starts making money?
You might have heard so-called experts making general comments like, "you won't ever go broke by taking a profit," or" don't allow a winning trader to turn into a loss." Those pieces of advice need to go into the same trash can as remarks like "the trend is your friend." This type of advice can actually do more harm than it does good due to the fact that they are way too general in nature.
A beginning can't be left to fill in all the blanks on his own. Everything needs to be spelled out. That is why a comprehensive trading strategy needs to specifically include how to manage winning trades until the position has been closed.
Given that one of the most important goals that every day trader should have is to protect their trading capital, it become just as important to protect profits as it is to limit losses. Protecting profits is actually a way of limiting losses also when you stop and think about it. When a trader has a winning trade, the unrealized profit amount is part of his account's total equity. Therefore using smart risk management scheme to protect his profits is equivalent to conserving his trading account's value.
Every trading strategy should include smart money management, and it is something that I always stress to traders.
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