Money Management Vs. Risk Management - Page 2
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Thread: Money Management Vs. Risk Management

  1. #1
    Trader Ruhul Amin's Avatar
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    Red face Money Management Vs. Risk Management

    A good trader always follow money management you see. But one another thing is very important is risk management. Also some new trader do not understand the different between money management and risk management. So today, I will give some theory on this topic.

    Definition:
    Money Management Refer to you manage your money. How you spent, How many time, How long etc. Actually the divided of your time and profit is money management.

    On the other hand, we use risk management to divided our capital in some parts of amount. It also refer with %. Also we refer it, How much we want to gain against we take the risk.

    Main Idea:
    The main idea of Money Management is really very large. Actually It include all the thing of forex success. But Risk management is just a part on Money management.

    So we can say,
    Money Management = Risk Management + Timeframe + gain pips (price movement) + loss management.

    On the risk management theme, we can see, we take risk some % on our capital. Money management keep the risk on that % we make part from the amount of risk.

    Example:
    The proper method to describe money management and risk management is, how we control our money. Let’s see, we invest 1000$ in standard account. We take the 2% risk for one trade. That means we take 20$ risk for per trade. Now think about it, How much you want to gain against 20$. I think 30$ is good in ratio of 1:1.5 (Risk Return Ratio).

    I think now you clear about it because both are not same. Risk management comes before money management but it’s a part of money management also.

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  2. #11
    Trader techboy's Avatar
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    Quote Originally Posted by cozard007 View Post
    If I am not mistkaken, the both will always work together. But in the actual sense, the meaning of the risk management is in trading directly, the risk the trader is taking per trade. For example, if I have $500 in my account, and I want to risk $50 per trade, then I know my risk, and I can manage it with the amount I am aiming to risk it for. And money management is in the number of risk you can take before the money is exhausted.
    Risk management can be interpreted differently,but in my simple interpretation it simply means that we must control our loses or we must trade with low risk, if we can risk 1% or lower per trade then the better for our capital to survive, even if we suffers consecutive losing trades, most traders trade using real money even if they dont have the skill of a good trader and so risk management is very important for them.

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    " Trading is 70% Psychology, 15% Risk Management and 15% Strategy ! "

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    Quote Originally Posted by techboy View Post
    Risk management can be interpreted differently,but in my simple interpretation it simply means that we must control our loses or we must trade with low risk, if we can risk 1% or lower per trade then the better for our capital to survive, even if we suffers consecutive losing trades, most traders trade using real money even if they dont have the skill of a good trader and so risk management is very important for them.
    Its very important that we educate ourselves properly. This is the main reason why so many have unstable account in forex trading. Because rather than trying to learn what is risk and money management they just try to interpret it base on their views and assumptions. That's why I always say "the title of the book does not tell the whole story". So its very important that we buy a forex trading book that has topic about risk and money management to understand what is the scope and limitation and functions risk and money management.

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  4. #13
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    forex only suitable and appropriate for those who are willing and able to learn, apply money management and trading strategies, means willing to learn, strive, strive and sacrifice, also able to survive, to keep the spirit and able to improve themselves getting better and growing, from time to time . if we had had all the success we can get it going.

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  5. #14
    Trader Ruhul Amin's Avatar
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    Quote Originally Posted by forexlearner View Post
    Nice thread yes I think our money management and risk management both are very important in trading. Following a good risk and reward ratio also very essential. I think we should choose good risk and reward ratio opportunities only. Personally I not like to do trade with 1:1 risk and reward ratio. We should choose more better opportunity like 1:3, 1:4 risk and reward
    Without money management trade like drive a car without a break. And without risk management is same as we drive with drunk mood. So if a trader want to be success on forex, he should follow both of them. I do not think choose 1:3 or grater is a good idea. It is very risky and most of the time, It is not possible to take profit in 1:3 or 1:4 ratio.

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    Quote Originally Posted by amjad23510 View Post
    I agree with you.money management is very important and along with tight money management ,we should have good risk reward ratio because it can give us consistent profit.Here in forex trading,only strategies or knowledge is not enough.we should have a lot of tricks and information in order to make good income.
    In order to make money in forex, it is definitely needed to be a good money management. But without proper skill and knowledge of trading, money management will not work. A trader need at least 60% success rate of trading to make money management apply successfully.

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  6. #15
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    Quote Originally Posted by ngalapreceh View Post
    forex only suitable and appropriate for those who are willing and able to learn, apply money management and trading strategies, means willing to learn, strive, strive and sacrifice, also able to survive, to keep the spirit and able to improve themselves getting better and growing, from time to time . if we had had all the success we can get it going.
    Well, in my own view on this, the learning is not the issue I have with traders, and this is not what is causing them to fail in this market trading, it is lack of learning of right thing. Forex traders wastes their time sin learning how to get the direction of the market, but not the way to align their account and preserves their profits and balance. Both management are very useful.

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  7. #16
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    Quote Originally Posted by Ruhul Amin View Post
    Without money management trade like drive a car without a break.
    yes, this is a good explanation, risk management and money management become the defense for traders or limit their losing, so the traders will get more chances for better trading , and also with them, they can keep good trading on the right track and get the best performance for the trading system

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  8. #17
    Trader Hukam's Avatar
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    Quote Originally Posted by budado View Post
    Its very important that we educate ourselves properly. This is the main reason why so many have unstable account in forex trading. Because rather than trying to learn what is risk and money management they just try to interpret it base on their views and assumptions. That's why I always say "the title of the book does not tell the whole story". So its very important that we buy a forex trading book that has topic about risk and money management to understand what is the scope and limitation and functions risk and money management.
    Mate there are many things to do in trading, I think we can get best experience only in real trading account but yes that first we have to educate ourself properly in demo trading account. We can learn about risk management and money management there, but for psychology learning we have to learn in real account. We need a good use of money management, risk management, and psychology in real trading.

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  9. #18
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    Quote Originally Posted by Hukam View Post
    Mate there are many things to do in trading, I think we can get best experience only in real trading account but yes that first we have to educate ourself properly in demo trading account. We can learn about risk management and money management there, but for psychology learning we have to learn in real account. We need a good use of money management, risk management, and psychology in real trading.
    Demo account is good to start with. But most trading skills can be achieve by trading in real account. The bad side trading in demo account is that we don't feel any pressure unlike when we are trading in real account using our own real money. With this pressure we end up giving value to the trading capital we have. Unlike in demo account we can trade aggressively and end up stop out without feeling guilt. In real account even one position that incur loses make use stress out.

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  10. #19
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    Quote Originally Posted by budado View Post
    Demo account is good to start with. But most trading skills can be achieve by trading in real account. The bad side trading in demo account is that we don't feel any pressure unlike when we are trading in real account using our own real money. With this pressure we end up giving value to the trading capital we have. Unlike in demo account we can trade aggressively and end up stop out without feeling guilt. In real account even one position that incur loses make use stress out.
    yes, everyone agree that we can not get trading psychologies experiences at demo account and so that's why we can see that demo account is only the simulator for learning and give the basic for trading, and after all the traders need to continue learning and practicing with use real account where they will stand under the emotion and psychologies that will give a big role to get the final results

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  11. #20
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    Quote Originally Posted by newentry View Post
    yes, everyone agree that we can not get trading psychologies experiences at demo account and so that's why we can see that demo account is only the simulator for learning and give the basic for trading, and after all the traders need to continue learning and practicing with use real account where they will stand under the emotion and psychologies that will give a big role to get the final results
    Yes we can't get everything that we need in demo trading account, but it means is not that we have to leave our demo trading learning. I still think that demo trading account have its own benefits, For example if we have to test our trading strategy then demo trading account is better choice rather than real account. So they have their own advantages, I love demo trading learning as well as like real trading.

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