Fibonacci & Money Management
Money management is very important. In my opinion, it is important as a technical part of trading. You can be a great Fibonacci trader, but without good money management, you are still failing.
What does good money management mean? This means that you do not take too much of your money and after a lost trade you have the capital to invest and build your property.
It is not enough to decide that you are not going to be a risky trade. You are not able to stop emotions completely. And where there are emotions, there are mistakes too. That’s why you need a good plan. The best way is to write and correct when necessary. There should be several posts in this plan:
- The size of your trading account.
- Maximum risk.
- Where you stay.
- When you take advantage.
- The number of trades lost, after which you close the trading.
Stop loss and 1% rule
Some trader prefers not to stop the loss because they are afraid of “stop-loss hunting”. I will not tell you what you should do, but unless you are a very experienced trader, forget about it and always stop losses. It does better than bad and it can save you from big losses. Suppose you have not set the stop loss. As soon as you want, the price falls down rather than the price increases. And it hardly falls. You want to close the order, you know that this is something you should do, but some ask you to wait. This is all about trading psychology and this is not new. You try to convince yourself that this is only an improvement and it will end soon. Yes, of course.
With a stop loss in place, you stop the level of your emotions to a minimum, so you do not have such doubts.
The second important thing is that you should take the risk. You’ve probably heard about a 1% rule. Yes, 1% is not much, but it’s a good rule. The main idea is that you should not risk more than 1% of your entire trading capital. Therefore, if your trading account is 100000, then you should not risk more than 1000.
Without a proper account size, you are not able to make a good money management system, and therefore, you are probably failing soon. This is a harsh truth.
This is especially true in our case when we use Fibonacci tools. Entries are fast, stop losses are tight, and our main target is to get some points of profit on big leverage. To be able to do this, you must have enough money to invest.
If you have a lack of money, but you earn millions, then you begin to take very risky positions and as a result, you probably lose all of your possessions.
What if your account is not large enough?
If you do not have enough cash now then do not worry. Just trade on less leverage. You will be able to keep a 1% risk ratio. Do not think that you are not going to make any good money with such short positions. Okay, you’re probably not going. But what you are going to achieve is valuable experience and knowledge. It takes a lot of time to learn to trade successfully. Use this time to find out how to get more money that you can invest later.
In this way, when you get enough money you will be ready.
This is the right way to succeed in investment. Very few percents of traders have got a rich start in small quantities like 5000.
Just stick to 1% of the rules and you will be in 10% of the best traders who follow their wealth management.
What if I still do not like the 1% rule?
Look, I got it. It’s not easy to use, but it’s a great tool to protect your capital, your grid and your trading psychology. If you still want to take more than 1% risk, and you believe that you are ready for it, then I will give you some advice. Divide your business capital and make it payable in two separate accounts. It is best to keep the ratio of 80:20.
Now you have two accounts – the first one is 80% of your money, and the other is 20% second. You are going to trade these two accounts, but with a different perspective with the big ones, you still stick to a 1% rule. That’s because it’s the place where you have the most money and you want to protect it.
You are going to do trade with greater risk using your second account so that you can increase the maximum loss up to 3-4% of your account. It can not seem much. If you can make good investment decisions, both of your accounts will grow, even small. You are going to make big profits from that account because your position is going to be bigger.