Trading Tactics and Money Management: No matter what happens today, you must ALWAYS be able to come back tomorrow.
Professional traders, by definition, make money. If they don't make money, they don't remain "professional" for very long.
Trading tactics is how you make use of the various orders at your disposal to achieve your objectives.
Money management is how much you risk on any given trade and accounts for 65% of the results of any game you play.
Show me a consistently successful trader and I'll show you sound money management at work.
Do they win on every trade? Of course not. If you were to examine their trades, you would see that their winning trades, on average, make more than they lose on their losing trades.
For example, if your winners average three times the amount lost on your losers, that means that you can be wrong two times out of three and still be profitable. Do the math.
The "secret" lies in ruthlessly keeping the losses small enough so that the winning trades have an easier time making it back before going into the black.
Given that the odds are 50-50 on any given trade, that is, either it's going to make money or it's not, you can't afford just to "trade" dollars. You need to get good at selecting trading vehicles that can give you a good run for your money (Technical Analysis).
You also need to know, before going in, exactly just how much you're risking on this trade.
The only way to do that is to use Puts to protect long positions and Calls to protect short positions.
Stop orders are fine for protecting profits. The trouble with using stops is when markets go into "fast" conditions and "gap" openings and, in the case of futures, "limit" moves.
By limiting losses to no more than 10%, the next trade only needs to gain 8.7% to make it back. A 50% loss requires a 100% gain!
Trading tactics and money management keeps you in the game.
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