Another important way to reduce risk, is to distribute your investment over a broad range of trades.

Proper rational management of your finances including the distribution of your investments or make the difference between a successful investment which can be managed overtime and a failed investment which will clear out your Investment Portfolio in no time.

Proper Capital Management will preserve your capital overtime enable you to trade more calmly and greatly minimize damages incurred during losses which are an inseparable part for trading.

Example of “A Proper Capital Management”

Losses are inseparable part of trading, however losses can certainly be minimized.

Proper Capital Management focuses on keeping your losses low and your profit potential high.

In this situation, you can lose most of your trades, yet still make a profit.

Here’s an example of the trader who loses 70% of the trades and makes a profit in the 30%, but still turns an overall profit.

Let’s say the trader closes 3 out 10 trades with a profit of $2,000 per trade, meaning that total profit amounted to $6,000.

3 * $2,000 = $6,000

If the trader places the “Stop Loss” of $200 on every trade and losses 7 transactions, its losses amount of $200 times 7 equaling $1,400.

7 * -$200 = -$1.400

Deducting $1,400 from 6000 and you’re still left with the profit of $4,600.

And so, even though the trader lost most of the trades, he still came out with the profit.

Proper Capital Management is the key to success in the world of trading. It means keeping losses low and taking profits high.

Greed is the traders’ worst enemy

Statistics have shown that the maximum loss, an experienced Trader can allow himself to lose in a single trade without harming is profit potential is 5% of total capital.

An investor risks, let’s say 25% of his Investment Portfolio in a single trade is practically insuring that he will lose his entire Investment Portfolio after a short series of losing trades.

Series of losing trade is something that happens from time to time to even the most experienced Traders this mistake results from attempting from large amount over a short period of time.