Ten Commodities Trading Money Management Methods
The process below describes the process of formulating commodity money management and practical advices on formulating your own commodity money management system in Commodities Trading - commodity account management.
1. Keep the Necessary reserve (over and above the broker margin requirement)
This reserve is needed for unusual situations & it should be not less than 50% of invested equity. It is the first rule of commodity account management in margin definition for opening commodity orders. However, many experts & analysts advice more reserve of about 70%-90% of invested commodity account capital for safe operation in commodity.
2. Do not to invest more than 2%-6%
This is one of the principle that helps to avoid bankruptcy: never invest more that 2% on one market and do not to invest more than 6% in the total open commodities trades.
3. Never risk a loss of more than 2% of invested money on any single trade
This is not the same as above, the above is never invest more than 5% , this is never to lose more than 2% on a single trade. In this case a trader risks only lose small part of his equity with an unprofitable order.
4. Diversify
Use optimal investment of your trading funds is that you should diversify to some degree. Just In case one trade losses, the order can be covered by profits of another trade.
5. Commodities money management guidelines should be well written down
On a piece of paper or better still in your trading plan. If you open orders then this trading orders should be within your commodity money management guidelines.
6. Define your stop loss and take profit levels
When you are trading put your stop commodity orders in order to avoid any huge losses or even bankruptcy. Profit taking levels will ensure you get additional profit by taking money out of the commodities market. Analyze the situation and predict the future movement of commodities price action and place orders accordingly. You can even use indicators and volatility of the commodity instrument to know where to place these orders.
7. Define of possible loss or profit before executing a trade
Consider only opening commodities trades when you have the chance to get profit against loss ratio of 3:1. If you cannot do it then don't open the order.
Commodity money management should seek to bring maximum profit to the traders account, keeping profitable orders as long as possible is a good strategy. Therefore, if you make some profitable orders you can have goods results.
8. Try to follow the rules of opening & closing the commodity orders specified in your plan.
That way you'll get consistent trading results required for making profits in commodities trading market.
9. Do not revenge against the commodities trading market
In this case, you'll not be interpreting the situation but you'll just be trading based on emotions & you'll lose more money.
10. Timely rest
Don't trade when you're exhausted, no matter how tempting the situation might seem, you might not get the profits that you can if you were to trade based on your commodity schedule.
Considering these - Commodity Trading Account Management Rules and Guidelines can make you trade profitably. Try to create your own commodity money management strategy that gives you good profits.
