Money Management- A must for trading-Hints

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Gentlemen,

### First thing first, Education


please read articles at link given here.

http://www.traders.com/Reprints/ArticleList.html

http://www.traders.com/Reprints/PDF_reprints/TC_FINE.PDF



### Second thing:
What is most important for trading?

Preparation:
If you are going to trade tomorrow,prepare tonight.

Next
Money Management is top priority.
MM means how much loss to take, how many shares or futures to buy,how much to invest and how to calculate all that etc
read link

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Proper trade size=No of shares/futures contracts to buy

FORMULA
Proper trade size= (Risk amount- commission)/(Difference between Entry price and Stop loss price)

Remember, commission=brokerage and taxes
Putting in figures, (500-80)/1.5=280 shares
1.5= difference between entry price and stoploss level, 500 is the risk amount, 80 is the commission

Example
Max risk=2% of TRADING ACCOUNT SIZE,ie, capital per trade
Account size=25000
Risk amount=2% of 25000=500
stock=MSFT
Entry price=60 Initial stoploss=58.5
Difference between entry and stoploss=1.5
Commission per round trip,ie,for buying plus selling=80
MAXIMUM TRADESIZE= 280 shares by calculation
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Summary

we invested in only so many shares,if loss comes it wont exceed 500,our max risk amount.

Amount invested=280shares at 60=16800
See the beauty THOUGH WE HAD 25000 AVAILABLE, WE HAVE CHOSEN TO INVEST ONLY 16800

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LIMITING RISK TO X% ON EACH TRADE IS THE KEY TO SURVIVAL.LIMITING MAX RISK TO
2% OF TRADING ACCOUNT SIZE IS THE KEY TO SURVIVAL.
wHY X% ON EACH TRADE? bECAUSE IT IS FLEXIBLE,BASED ON SCRIP AVERAGE TRUE RANGE, WE SET THIS X%.

Good luck