As a trader you may consider the preservation of your equity as a primary target and therefore would not seek to make as much money as possible, as quickly as possible; without your equity base you have nothing to trade with.
There are considered to be 3 main areas to money management:
- not to invest all your equity at one time
- learning to cut your losses and
- run with your profits
Generally, traders will hold between 20 and 40 percent of their equity in the market at any one time. If you trade 100% of your equity you are leaving yourself wide open to market fluctuations that could see your funds depleted very quickly.
The second and third are interlinked and are probably the most important pieces of advice any experienced trader will offer. Unfortunately they are almost certainly the most broken rules among new traders. An inexperienced trader will generally have winning trades showing very small profits and losing trades showing very large losses. More experienced and successful traders will have lots of small losses but their profits will be far greater.
