Trade Money Management Styles and Methods in Commodities

The best way to practice successful commodity money management in Commodity Trading is for a to keep losses lower than the profits they make. This is called risk:reward ratio.

High Reward to Risk Ratio

This technique is used to increase the profitability of an investment strategy by trading only when you've the potential to make more than Three times more than what you're risking.

If you invest using a high risk reward ratio of 3:1 or more, you significantly increase your chances of becoming profitable in the long run. Chart below shows you how:

In the first example, you can see that even if you only won 50% of your commodity trade transactions in your account, you would still make a profit of $10,000.

Even if your win rate went lower to about 30% you would still end up profitable - Trading Account Management Principle - Commodity Trading Money Management.

Just remember that whenever you have a good risk to reward ratio, your chances of being profitable as a trader are much greater even if you have a lower win percentage for your commodities strategy.

Never use a risk to reward ratio where you can lose more pips one trade than you plan to make. It doesn't make sense to risk 1,000 dollars in order to make only 100 dollars.

Because you have to win 10 times to make the $1,000 back. If you ONLY lose once you have to give back all your commodity profits.

This type of investment strategy makes no sense & you'll lose on the long term.

Percentage Method

The percent risk method is a technique where you risk the same percent of your trading account balance per transaction - Trading Account Management Techniques.

Percent risk based method says that there will be a certain percentage of your account equity balance that is at risk per trade. To calculate the percent risk per each trade transaction, you need to know 2 things, the percentage risk that you've chosen and lot size of an open order so as to calculate where to put the stop loss order. Since the percent is known, we shall use it to calculate the lot size of the trade order to be placed in the commodities market, this is what is known as position size.

Example

If you have an account balance of $50,000 in your account and risk percent is 2%

Then 2 % is equal to $1,000

Other factors to consider include:

• Maximum Number of Open Trade Positions

A final point to consider is the maximum number of open trade positions that is the maximum number of commodities trades that you want to be in at any one given time. This is another factor to decide when managing account capital.

If for examples, you chose a 2 %, you might also say chose to be in a maximum of 5 commodity trade positions at any one given time. If you open 4 trade positions & all 4 of those positions close at a loss on the same day, then you would have an 8% decrease in your account balances that day.

• Invest Sufficient Capital

One of the worst mistakes that investors can make in commodity is attempting to open a commodity account without sufficient capital.

The trader with limited capital will be a worried investor, always looking to minimize losses beyond the point of realistic trading, but will also be frequently taken out of the trades before realizing any success out of their commodities strategy.

• Exercise Discipline

Discipline is the most important thing which a trader can master to become profitable. Discipline is the ability to plan your work and work your plan.

It is the ability to give a commodity trade the time to develop without hastily taking yourself out of the market simply because you are uncomfortable with risk. Discipline is also the ability to continue to stick to your commodity plan even after you have suffered losses. Do your best to cultivate the level of discipline that is needed so as to be profitable.

Managing Account Capital Basics

Commodity money management, is the foundation of any commodity system as it helps investors to improve their chances to get profit trading on the commodities market. It is especially important when transacting in the leveraged market, which is considered to be probably be among some of the more liquid financial markets but at the same time to be among one of the riskiest.

If you want to invest successfully in the market you should realize that it's very important to have an effective commodity strategy of commodity money management because you will be using leverage to place your orders - Trading Account Management Basics.

The difference between average profits & losses should be strictly calculated, the profits on average should be more than the losses on average when trading, otherwise commodity won't yield any profits. In this case an investor has to formulate their own account management rules, success of each trader depends on their individual traits. Therefore, every makes his own commodity strategy and formulates their own commodity money management guidelines based on the above guidelines.

When you are placing your orders put your stop loss orders in order to avoid huge losses. Stop loss orders can also be used to lock in profit.

Consider the chance to get profit against chance to get loss as 3:1 - this risk: reward ratio should be favorable more on the profit side.

Considering these commodity rules and guidelines, you can use them to improve profitability of your commodity strategy and try to create your own commodity strategy that will possibly give you good profits when trading with it.