Money management is essential if you are to make and kind of trading successful. Even if you are able to generate healthy profits over a long period of time, without some kind of money management you can lose it very quickly over one or two bad trades. By planning your strategy for the long-term you can protect yourself from heavy losses. Money management will also help you to keep tabs on your profits and losses and this will be invaluable whilst developing your trading skills.
You should set yourself a sensible maximum percentage that you are prepared to risk on a single trade (typically around 8.5%). This means that you will have to be wrong on eleven consecutive occasions before your bank is empty.
You should learn to trade only when you are confident that you have done the proper research and analysis to justify your investment. If you are uncertain, do further research or pass up the trade. By keeping records of your investments you will soon notice patterns that indicate your strengths and weaknesses.
Learn to diversify by trading options on a number of different assets or markets (e.g. Forex and Indices), dividend industries and expiration times. Keep yourself right up-to-date with the markets and important financial announcements. You do not need to trade every day but you should certainly follow the financial news on a daily basis so that you are well-placed to take advantage when opportunities arise. You will gradually build up a good understanding of how the markets work and you will be able to spot market trends and capitalise on them.
Be prepared to expect losses. Even the shrewdest of investors can hit a bad patch so never get over-confident and plan for the long-term. The more effort you are prepared to put in, the greater your chances of reaping the rewards.
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