Trading Plan: Learn to Manage Money and Risks
Managing money and risk is one of the most important skills traders should work on when creating their trading plan. Chris Svorcik developed a complete guide to building an effective trading plan entitled “Trading: The Battle Plan”, which aim is to help traders unleash their inner trading soldier. He considers that trading can be very much likened to a battle, and traders to soldiers. Some soldiers end up victorious, while some, unfortunately, do not. Nonetheless, more often than not, the soldiers who do end up winning their battles are the ones who had planned better; the ones who were able to devise of effective battle plans. This article refers to traders’ ability to manage risk and money, which can be considered as one of the core aspects of the creation of an effective trading plan.
Risk Management vs. Money Management
To not be able to apply risk and money management principles is most certainly very much disadvantageous to traders. To better understand this point, let us first define what Risk Management and Money Management are, respectively. By assessing market conditions, risk-reward ratios, probabilities, and the use of stop loss orders, and many others, Risk Management aims to minimize the losses for every trade. On the other hand, Money Management focuses on the steps necessary to maximize profit by the use of trailing stops and adjusting the transaction size, and many more.