Rules in Capital management

Hi Everyone,

Maybe let me start of something interesting here.

Anyone knows how to protect ur capital when u trade? The important thing that you have to remember is your % loss in comparison to your capital.

Always set a percent cut, there are many examples. I shall show you the simplest form which i always use. I followed Dr Alex Elder 2%, 6% Rule

These are steps of proper money management.

1. Calculate on your account Value at the start of the month.

2. Measure 2% of your equity This is the maximum you may risk on any given trade

3. Calculate 6% of your given Equity, this is the maximum you are permitted to lose on the month. Once you hit the max, you will have to close out and stop trading for the month

4. Each trade, decide on your entry point and a stop. express ur risk per share or contract in dollar.

5. Divide 2% of your equity by risk per share to find how many shares you may trade.

6.Calculate your risk on all open positions by multiplying the distance from your entry point to the current stop by the numbers of shares. If total risk is 4% of your acct or less, you may add another position, since you’ll be adding 2% with ur current trade, bringing the total to 6%. Remember you do not have to risk 2% per trade, you may risk less if you like.

7. Put on a trade only after meeting all of the above conditions.

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Establish the size of ur trades on the basis of how much money you can afford to risk, not how much you want to make. If you are having a good month, with most trades going ur way, you will move your stops beyond breakeven and be allow to put on more positions. you may even go on margin.

The beauty of this money management system is that it clips your losses when you are cool and lets you go forward at full throttle when you are hot.

more articles coming up, meanwhile share ur trades