Indices Trading Money Management Styles and Methods in Indices Trading

Best way to practice successful indices trading 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 trade transactions 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 - Indices Trading 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 trading 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've to win 10 times so as to make the $1,000 dollars back. If you ONLY lose once you have to give back all your indices trading 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 trading account balance per transaction - Trading Account Management Techniques.

Percent risk based method says that there will be a certain percentage of your trading account equity balance that is at risk per trade. To calculate the percentage risk per each trade transaction, 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 trade order to be placed in the market, this is what's known as position size.

Example

If you have an account balance of $50,000 in your trading 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 trading account capital.

If for examples, 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 capital.

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

• Exercise Discipline

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

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

Managing Account Capital Basics

Indices trading money management, is the foundation of any indices 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's very important to have an effective trading strategy of indices trading money management because you will be using trading leverage to place your orders - Trading Account Management Basics.

The difference between average profits & losses should be strictly calculated, the profits on average should be more than the losses on average when trading, otherwise indices trading will not 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 traits. Therefore, every trader makes his own trading strategy & deveop their own indices trading money management rules based on the above guidelines.

When you are 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 to get profit against chance to get loss as 3:1 - this risk: reward ratio should be favorable more on the profit side.

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