Saturday, 24 October 2009

What is Proper Swing Trading Money Management?

Managing your trading funds well is the key to winning at swing trading. If traders have poor money management, they more often than not begin to increase the size of their trades after they get a few winning trades under their belt. They do this with the hope of increasing their returns exponentially. However, this style of trading thanks to poor money management usually results in traders blowing up their trading accounts and losing more money than they make.

Effective money management should cover all of the following:

Detach yourself emotionally from the money.
Never trade more than you are comfortable with.
Never risk more than you stand to win.

First, you should place no importance or emotions on the money you use for trading. It is best to use money for swing trading that you know you can live without. This isn't about failure or the worry of failure. It is about being smart. Trading with your child's college funds will only add unwanted stress. Do you really need to make trading any more difficult by worrying about how you will feed your family if you lose next week's paycheck? Of course not.

Second, start trading with small amount. Don't rush yourself. The markets will be around for years to come and you should be in no rush. Just how small should you start trading? The answer to this depends on you, what do you feel comfortable with. When trading, you should be focused on trading and not on how much money you may win or lose. To avoid having this happen, don't trade with amounts that make you feel stressed or uncomfortable. You can even start trading using nothing more than a few cents. What is important is that you are comfortable and are in control of your trading.