Indices Money Management Styles and Methods in Indices Trading

Best way to practice successful money management in Indices is for an investor to keep losses lower than the profits they make. This is called risk to reward.

Account Management Strategies

This method is used to increase the profitability of an investment strategy by trading only when you've the potential to make more than Three times more than what you're 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. Chart below shows you how:

In the first example, you can see that even if you only won 50 % of your trades in your 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 - Trading Account Management Principle - 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 strategy.

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

Because you have to win 10 times so as to make the $1,000 back. If you ONLY lose once you have to give back all your profits.

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

Account Management Strategies

The percentage risk technique is a method where you risk the same percent of your account equity balance per transaction - Trading Account Management Techniques.

Percent risk based method says that there will be a certain percentage of your account equity balance that is at risk per trade. To calculate the percentage risk per each trade, you need to know 2 things, the percentage risk that you've chosen and lot size of an open stock 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 trading order to be opened in the market, this is what's known as position size.

Example

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

Then 2 % is equal to $1,000

Other factors to consider include:

• Max Number of Open Trade Positions

A final point to consider is the maximum number of open 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 account equity.

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

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

• Exercise Discipline

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

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

Managing Account Capital Basics

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

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

The variation between average profits & losses should be strictly calculated, the profit on average should be greater than the losses on average when trading, otherwise trading won't yield any profits. In this case an investor has to formulate their own trading account management rules, success of each person depends on their own individual character traits. Hence, every trader makes his own strategy & deveop their own money management rules based on the above guidelines.

When you're placing your 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 of getting profit against chance to get loss as 3:1 - this risk: reward ratio should be favorable more on the profit side.

Considering these rules and guidelines, you can use them to improve profitability of your strategy & try to create your own strategy that will possibly give you good profits when trading with it.