Here are the examples for two difference rules of money management:
Here are the rules I follow:
I start my trading off with a risk of 3% of my total capital on any opening trade.
I will continue with that percentage. (Risk 1 : 2 Reward) $300 : $600
When I have three winners in a row, I will risk 4.5% of my total capital.
Equity/ Risk Percent/ Risk Amount/ (Profit&Loss)/ New Equity
$10,000 x 3% $300 $600 =$10,600
$10,600 x 3% $318 $636 =$11,236
$11,236 x 3% $337 $674 =$11,910
$11,910 x 4.5% $535 $1,070 =$12,980
$12,980 x 4.5% $584 ( $584 ) =$12,396
$12,396 x 3% $371 ( $371 ) =$12,025
$12,025 x 1.5% $180 ( $180 ) =$11,845
$11,845 x 1.5% $177 ( $177 ) =$11,668
$11,668 x 1% $116 $232 =$11,900
$11,900 x 1% $119 $238 =$12,138
$12,138 x 3% $364 $728 =$12,866
Total profit per month = USD $2,866
If I have a loss, I will revert back to risking no more than 3% of my overall capital.
If I have two losses in a row, I will risk only 1.5% of total capital.
If I have 4 losses in a row, I risk 1% of my base equity until I have 2 winners, then I jump back up to risking 3% of my base equity again.
With this system, we are trading larger sums when we are winning and smaller sums when we are losing. This system preserves capital. Always follow the money management sequence.
Here are the second rules of money management I follow:
I start my trading off with a risk of 3% of my total capital on any opening trade.
I will continue with that percentage. (Risk 1 : 2 Reward) $300 : $600
And I will not change the risk percent anymore.
Equity/ Risk Percent/ Risk Amount/ (Profit&Loss)/ New Equity
$10,000 x 3% $300 $600 $10,600
$10,600 x 3% $318 $636 $11,236
$11,236 x 3% $337 ( $337 ) $10,899
$10,899 x 3% $327 $654 $11,553
$11,553 x 3% $346 $692 $12,245
$12,245 x 3% $367 $734 $12,979
$12,979 x 3% $389 $778 $13,757
$13,757 x 3% $412 $824 $14,581
$14,581 x 3% $437 ( $437 ) $14,144
$14,144 x 3% $424 ( $ 424 ) $13,720
$13,720 x 3% $411 $822 $14,542
Total profit per month = USD $4,542
This types of money management are normally use by retail trader & amateur trader.
Warning: Don't risk more than 5% of your trading account.