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Tips for Money Management Usage (Part 1)

Many traders often focus too much on their trading strategies without giving enough attention to money management. However, in reality, money management is the key to long-term success in trading. This is also well understood by professional traders. For example, Nial Fuller, an experienced forex trader and mentor, refers to money management as the "holy grail" of the trading world. In this article, we will discuss some tips suggested by Fuller for effectively implementing money management.

Consistency in Risk Management:

One important principle in money management is consistency in managing risk. A professional trader named Marty Schwartz suggests that we should not increase the trading lot size unless our account balance has been successfully doubled or tripled. Many traders make the mistake of increasing their trading lot size after making profits. This often leads to significant risks to the trading account and can even result in a margin call.

One common mistake I often observe is the lack of consistency in setting risk, especially when there is no clear trading plan as a guideline. When traders achieve significant profits or a series of profits, caution about risk often decreases while confidence increases. However, it's important to remember that even if we have sophisticated trading strategies, our trading results will still follow a random distribution pattern. Therefore, it is not logical to drastically increase the trading lot size just because we feel confident. Consistency and discipline in setting risk for each trade are crucial, as recommended by Richard Dennis, a famous trader who almost lost his entire account due to lack of consistency and discipline in managing risk.


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