Trade Stock Indices

Index Money Management Styles and Methods in Indices Trading

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

Account Management Trading 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 greatly increase your chances of becoming profitable in the long-run. Chart below indicates to you how:

Reward : Risk Chart - Funds Management Techniques - Trading Account Money Management

In the first illustration, you as a Stock Index trader can see that even if you only won 50 % of your trades in your trading 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've got a good risk: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 as a stock indices trader can lose more pips one trade than you plan to make. It does not make any sense to risk $1,000 dollars in order and so as to make only $100.

Because you've got 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 trading profits.

This type of investment strategy makes no sense and you'll 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 Methods.

Percent risk based method says that there will be a certain percentage of your equity balance that is at risk per position. To calculate the percent risk per each trade position, 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 % is known, we shall use it to calculate the lot size of the trading order to be opened on the market, this is what is known as position size.

Example

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

Then 2 % is equivalent to $1,000

Other factors & aspects to consider include:

  • Maximum Number of Open Trade Positions

A final point to consider is the maximum number of open trade position positions that is the maximum number of stock trade transactions that you want to be in at any given time. This is another factor to decide when managing equity.

If for example, you select & choose a 2 %, you might also say choose & select to be in a max of 5 trade positions at any one time. If you open 4 positions & all 4 of those positions close at a loss on the same trading day, then you would have an 8% decrease in your account balances that day.

  • Invest with 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 investment capital will be a worried trader, always looking to reduce and minimize their losses beyond the point of realistic trading, but will also be often taken out of the transactions before realizing any type of success out of their trade strategy.

  • Exercise Discipline

Discipline is most important thing that a stock index trader can master to so as to become profitable. Discipline is the ability to plan your work and work your trade 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 is also the ability to continue to adhere to your indices plan even after you've suffered losses. Do your best to cultivate the level of discipline that is needed so that to be profitable.

Managing Account Capital Basics

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

If you want to invest successfully in the market you should realize that it is very important to have an effective strategy of money management because you'll 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 and higher than the losses on average when trading, otherwise trading won't yield any profits. In this case an investor has to formulate their own account management rules, success of each trader depends on their own individual character traits. Hence, every trader makes his own strategy & develop their own money management rules based on the above guidelines.

When you're placing your trade orders put your stop loss orders so as to avoid huge losses. Stop Loss orders can also be used to lock on the profit.

Consider chance of getting profit against the chance to getting loss as 3:1 - this risk reward ratio should be favorable more on the profit side.

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

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