mahikarnam

As a swing trader, your money management strategy is the one variable that will give you the biggest edge in trading stocks. Believe it.

You cannot control the markets but you can control your money and your risk on each and every trade that you make.

William O'neill, founder of Investors Business Daily, has said that, "The whole secret to winning in the stock market is to lose the least amount possible when you're not right." I would agree with that!

Your money management strategy answers these questions:

* How much money should I risk on this trade?
* How many shares should I buy?

A good trading system or strategy is absolutely worthless without a method of managing your money. You like to trade stocks right? You like to make money in the markets right? Well, you will not have any money to trade with if you do not follow good money management practices!

Your #1 goal as a swing trader is to preserve your capital so that you can stay alive long enough to have some big winners that cover the costs of your losing trades AND make a profit. You accomplish this through a sound money management strategy.
The 2% Rule

Most traders would agree that you should not risk more than 2% of your trading capital on a single trade. The stock market is mostly random. No one else is going to tell you this, but this is the reality of trading stocks.

So no matter how good the chart looks, there is a chance that the stock will not go in your desired direction and you WILL lose money on the trade. How much money will you lose if this happens?

On the first of each month, look at the total amount of money in your trading account. Let’s say you have $30,000 dollars. Two percent of this amount is $600.00. That is the maximum amount you can lose on a trade.