[Capital Management] Don’t trade without knowing this!! How to think about stop-loss and position size.

This is a discussion about money management.

Although it is probably the most important factor in making profits from trading, this is content that most books do not cover.

To achieve results in trading, there are various elements such as technical analysis skills and the ability to read fundamentals, but you cannot win consistently without money management techniques.

If you have not given money management much thought until now, how about taking this opportunity to review it?

Why is money management necessary?

In trading, there is no such thing as a 100% win rate, right.

There are times you win and times you lose.

If the amount won is greater than the amount lost, you make a profit; and if not, you incur a loss.

This is something obvious, but it is the difference between the amount won and the amount lost.

It is not the number of wins and losses that matters.

Even with 9 wins and 1 loss, you can still end up negative if that one loss is large, and with 1 win and 9 losses, you can be positive if that one win is large.

The goal of trading is not to increase the win rate, but to grow the account balance, right.

While winning and losing, you steadily increase your funds.

For that, money management becomes important.

Trades like this are not okay!!

“I set the trade size and always trade 10,000 units.”

“It's important to place a stop! As soon as I enter, I set a stop 50 pips against me.”

This is a common example of trading, but both are incorrect from a money management perspective.

Of course, it is important to limit trade size to avoid overexertion and to always place a stop market order when entering a trade.

But simply doing it isn't enough.

You must place a properly reasoned stop order based on sound money management and account for position sizing.