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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. #21
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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
    I so much agree with you sir, the demo can never tell the trader the good trading psychologies that would bring the expectation that we really need in the market. It is with that we get what we want in the demo, and the aspect of the emotion and balanced trading psychology would not be there because of the uncared attitude of the demo trading.

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  3. #22
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    we can learn on a demo account, if in the real account failed, we could evaluate. without our failure will be difficult to move forward, all require a process, of learning and to practice all require a long process, we continue to improve so that the failure to reach the level of pro trader. for my demo account is very important

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  4. #23
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    Quote Originally Posted by cozard007 View Post
    I so much agree with you sir, the demo can never tell the trader the good trading psychologies that would bring the expectation that we really need in the market. It is with that we get what we want in the demo, and the aspect of the emotion and balanced trading psychology would not be there because of the uncared attitude of the demo trading.
    But still demo trading is best to learn about all other things. Like our trading strategy, our risk and reward learning, money management and risk management learning. The only negative point is we not get any psychology trading experience in it which we have to learn in real trading account. We don't have to any other way to learn about emotion, so first we have to learn in demo, and our next step will be to fund in a cent account, and I am sure that cent account is a good way to learn about emotion handling techniques. Hope I am right, that's my own opinion

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  5. #24
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    Quote Originally Posted by ngalapreceh View Post
    we can learn on a demo account, if in the real account failed, we could evaluate. without our failure will be difficult to move forward, all require a process, of learning and to practice all require a long process, we continue to improve so that the failure to reach the level of pro trader. for my demo account is very important
    We can learn a lot of thing without any worry in demo account because there is no risk at all. That's why, demo account is good for testing strategy and its performance but you need to be discipline when you have found proper trading plan and implemented in real account. Demo account is only preparation to the real trading, good performance in demo account didn't guarantee good result too in real account. Beside, it is easier to find out good timing to entry and exit point while you're in demo account because you don't have anything to worry but in real account, you will get pressure with possibility of loss.

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  6. #25
    Trader kie202's Avatar
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    Once the risk and reward ratio is also very important. I think we have to choose a good risk and opportunity, money management is very important and together with strict money management, we must have good risk reward ratio because it can give us a consistent profit, da lot of uncertainty in the market and if we are not going to follow the management practices good money

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  7. #26
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    I think that they are the two important topics which we must take guard of . I think that the money management is a very good and very important to follow . so the trading may be very calculated before we are already know the result . the risk management is a very important and also the money management as well

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  8. #27
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    Quote Originally Posted by Khimi234 View Post
    But still demo trading is best to learn about all other things. Like our trading strategy, our risk and reward learning, money management and risk management learning. The only negative point is we not get any psychology trading experience in it which we have to learn in real trading account. We don't have to any other way to learn about emotion, so first we have to learn in demo, and our next step will be to fund in a cent account, and I am sure that cent account is a good way to learn about emotion handling techniques. Hope I am right, that's my own opinion
    True, demo trading is helpful in some aspects in trading, but we must transfer to real trading later to be able to understand and experience how emotions can affect our trading and learn to control it, but we should not use big capital while practicing in real account to avoid huge loses.

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

  9. #28
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    I have a point of view if i could apply it very well . I may be so successful in the trading . it is a bout the money management . like tis . we have only to trade one 0,10 lot size for each 5 dollar or 500 cents on the cent accounts . and avoid doing more trades at the same time . also we have to put small take profit with stop loss

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  10. #29
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    Quote Originally Posted by Ruhul Amin View Post
    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.
    Well friend you have opened a topic on a very important subject but I am sorry to say you have not given the appropriate definitions here.Please have a look

    Money management
    Money management as you said refers to the management of money.In trading it is used to stress the importance of diversification of our money between different investment options ranging from low to high risk. We should never invest all our money in a high risk option like Forex

    Risk Management
    Risk management refers to the amount of risk we are taking when trading. It stresses on the need to manage the risk according to our risk capacity and our losing potential. Here we also need to take into account the potential profits we can expect from a trade

    These are my own definitions as per my understanding on the subject. Anyone who thinks otherwise is welcome to give his views.

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  11. #30
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    Quote Originally Posted by PROPENSITY100 View Post
    Well friend you have opened a topic on a very important subject but I am sorry to say you have not given the appropriate definitions here.Please have a look

    Money management
    Money management as you said refers to the management of money.In trading it is used to stress the importance of diversification of our money between different investment options ranging from low to high risk. We should never invest all our money in a high risk option like Forex

    Risk Management
    Risk management refers to the amount of risk we are taking when trading. It stresses on the need to manage the risk according to our risk capacity and our losing potential. Here we also need to take into account the potential profits we can expect from a trade

    These are my own definitions as per my understanding on the subject. Anyone who thinks otherwise is welcome to give his views.
    These are really good explanation for the terms you gave sir. Each time a trader has an open position then risk is involved. The only time a trader is not exposed to any risk until he places a trade. The business simply thrives with good risk management,because risk is there all the way. Also it is always wise to diversify our investments between options we know are good.

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