Psychology, Trading Tactics and Money Management are the 3 essential skills for successful trading.
These skills can be learned but most traders tend to overlook the Money Management skills in trading.
A good way to start learning the skills to manage money is getting to know the 3 basic strategies of Money Management.
The 3 basic Money Management Strategies.
1. Constant Investing System
The Constant Investing system need to define a fixed amount of each trade at the beginning. Then traders must open each position with the same amount of money.
The sequence of profit or loss in trading does not matter as the following example.
| No. | Portfolio Amount | Profit / Loss | No. | Portfolio Amount | Profit / Loss |
|---|---|---|---|---|---|
2. Martingale System
The Martingale system is well-known as a betting system. The main idea behind this system is that statistically gamblers cannot lose all the time. Therefore when gamblers lose in a gambling, they should increase the amount of money by 2 times in next gambling to cover their loss in last gambling.
This type of strategies guarantees 100% profit if traders or gamblers have enough amount of money to cover their string of loss. If not, this system will destroy their portfolio.
3. Anti-Martingale System
As its name, the Anti-Martingale System is opposite with the Martingale strategy. While the Martingale will increase the amount of investment when traders get loss (smaller portfolios). The Anti-Martingale System will accept greater risks by increasing amount of trading during periods of expansive growth (larger portfolios).
These are 3 basic types of strategies in Money Management. There are still lots of Money Management Strategies out there. Find the systems that best suit to your trading styles.
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