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The Basic of Portfolio Management

Whatever trading system you are using to trade, you need to apply money management principles to become successful. This is the most important aspect of your trading... not the strategy or method. They are important too, but even if you have a great trading strategy, you will not be successful without money management in mind.

The main objective of money management is to preserve your account. How well you apply it can determine how quickly you will grow your account and failing to apply it will be responsible for how fast you kill your account. We know all too well how much we need to apply money management techniques but many times, traders fail at applying it. If no one told you this just yet, then I will. Forex trading is a serious business. It’s not a get rich quick scheme as others would put it. It requires discipline and self-control.

Protecting your capital leads to growing your account. Yes, you want to make a profit, but putting too much at risk is counter-productive. It can deplete your account faster than you can make money.

Traders are not gamblers. We look at prices on charts and not fruits or dollar signs on slot machines. We trade based on statistics rather than mere luck. The reason any trader should place a trade is that there is a higher probability of winning the trade than losing it. Your first thought while placing a trade should be whether YOU trust that asset or no. Say you want to trade Apple Inc. shares (Appl); your first thought should be on the company itself, whether you like its products or not. This is very important. Start from here and then decide the amount of risk you are willing to take in that particular trade. The better you are at making high probability trades, the greater results you can get.

So, with that being said, money management becomes a key element which alone can lead you to become a successful trader. In the future chapters, we will go more in-depth through money management techniques, diversification and market correlation for a better comprehension of the markets and taking steps towards becoming an excellent trader.