Stock Money Management Styles and Methods in Stocks

The best way to practice successful stocks money management in Stocks Trading is for an investor to keep losses lower than the profits they make. This is called risk to reward ratio.

High Reward to Risk Ratio

This method is used to increase the profitability of an investment strategy by trading only when you have the potential to make more than 3 times more than what you are 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. The Stocks Trading Chart below shows you how:

In the first stocks example, you can see that even if you only won 50% of your stocks trade transactions in your stocks 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 - Stocks Account Management Principle - Stocks 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 stocks trading strategy.

Never use a risk to reward ratio where you can lose more pips one stocks trade than you plan to make. It does not make sense to risk 1,000 dollars in order to make only 100 dollars.

Because you have to win 10 times which to make the 1,000 dollars back. If you ONLY lose once you have to give back all your stocks profits.

This type of investment strategy makes no sense and you will lose on the long term.

Percentage Method

The percentage risk method is a method where you risk the same percentage of your account balance per transaction - Stocks Account Management Methods.

Percentage risk based method says that there will be a certain percentage of your stocks account equity balance that is at risk per trade. To calculate the percent risk per each stocks trade transaction, you need to know two things, the percentage risk that you've chosen and lot size of an open stocks order so as to calculate where to put the stop loss order. Since the percent is known, we shall use it to calculate the lot size of the stocks trade order to be placed in the stocks market, this is known as position size.

Example

If you have an account balance of $50,000 in your stocks account and risk percent is 2%

Then 2 % is equal to $1,000

Other factors to consider include:

• Maximum Number of Open Stocks Trade Positions

A final point to consider is the maximum number of open stocks trade positions that is the maximum number of stock trades that you want to be in at any one given time. This is another factor to decide when managing stocks account capital.

If for example, you chose a 2%, you may also say chose to be in a maximum of 5 stocks trade positions at any one given time. If you open 4 trade positions and 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 that investors can make in stocks is attempting to open a stocks account without sufficient capital.

The stocks trader with limited capital will be a worried investor, always looking to minimize losses beyond the point of realistic trading, but will also be frequently taken out of the stocks trade transactions before realizing any success out of their stocks trading strategy.

• Exercise Discipline

Discipline is the most important thing that a trader can master to become profitable. Discipline is the ability to plan your work and work your plan.

It is the ability to give a stocks trade the time to develop without hastily taking yourself out of the stocks market simply because you are uncomfortable with risk. Discipline is also the ability to continue to stick to your stocks plan even after you have suffered losses. Do your best to cultivate the level of discipline required to be profitable.

Managing Account Capital Basics

stocks money management, is the foundation of any stocks system as it helps investors to improve their chances to get profit trading on the stock market. It is especially important when transacting in the stocks leveraged stock market, which is considered to be probably be among one of the more liquid financial markets but at the same time to be also one of the riskiest.

If you want to invest successfully in the stocks market you should realize that it is very important to have an effective stocks strategy of stocks money management because you will be using stocks leverage to place your stocks orders - Stocks Account Management Basics.

The difference between average profits and losses should be strictly calculated, the profits on average should be more than the losses on average when trading, otherwise stocks will not yield any profits. In this case an investor has to formulate their own stocks account management rules, success of each person depends on their individual traits. Therefore, every investor makes his own stocks strategy and formulates their own stocks money management guidelines based on the above guidelines.

When you are placing your stocks orders put your stop loss 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 stocks rules and guidelines, you can use them to improve profitability of your stocks strategy and try to develop your own stocks strategy that will possibly give you good profits when trading with it.