What is Money Management in detail?

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Many of experience trader talking about money management that's the most important thing before start trading in real market.. but what the main point of the MM?
 
to calculate risk.
 
Marco vd Heijden:
to calculate.
thank you for response.. but how to calculate that risk for people who just start involve in forex trading..
 

Explaining money management for some might be the simplest thing in the world, not so much for me.  Basically Money Management (or MM) is a short way of explaining only pay out as little as possible and bring in as much as you can.  Explaining how to accomplish that is less easy to explain.  One way of looking at it I have heard explained is knowing when you should cut your losses, and when to let your profits ride (get as high as they can on the trade you are in).  Different people accomplish this different ways.  Some people are day traders, and will sit there all day in front of the screen, paying attention to how their thoughts or their system tells them IF they should even get into a trade or not, and if so, at what price point.  That experience they have, or a trading system for some, also tells them at the top end when to exit the trade.  It also has the flip side, of knowing when you are in a trade, and it goes against you, when you should exit, or if it is a minor price drop and getting out will basically lose you money because after this small price drop, the price is going to jump up 10 times what it went down.  If you exited the trade then, you would have missed out on all those profits.

That is where the money management part comes in.  There are times when you will lose money on a trade.  Unless you are inhumanly lucky, that is the only 100% guaranteed thing in trading.  The money management part as it applies here is knowing when to get out of a bad trade, even though you would be losing money on the trade.  If you do not do this part right, you can lose your entire account in one trade.  There is no way every single time to get every single cent out of every trend that happens.  The trend trading systems out there all have different ways of determining if a trend is happening, with support and resistance lines, history charts, and a whole bunch of different indicators with different names and different items that they are showing you, the trader.

The thing with any of these systems or indicators or any of it, is there is no magic solution to trade on every single tradeable item on every single time frame under all market conditions.  That is where the Money Management part comes in to play.  The day traders might not have something they specifically call it, but that is what makes a day trader successful, knowing when to call it quits on a bad trade, and knowing when to get out on a good one before it turns around and becomes a bad one.  What us (I hate to use this term but...) "casual" traders have to make use of is the same idea if we sit there and "day trade" a few hours a day or else use a system that has money management of some sort built into it.

 
Wan Azaha Wan Jusoh:
thank you for response.. but how to calculate that risk for people who just start involve in forex trading..

Here is a great article to start with. It's somewhat old, but it is still relevant:

https://www.mql5.com/en/articles/1571

Some MM strategies are designed to preserve capital as long as possible (just like in the example in the article above), especially against black swan events or losing streaks. Others are aimed at maximizing returns, but are potentially high-risk (e.g. martingale). Some are very specific to strategies, for example, turtle trading, which calculates volume per trade inversely with volatility (ATR).

On the Long Way to Be a Successful Trader - The Two Very First Steps
On the Long Way to Be a Successful Trader - The Two Very First Steps
  • 2009.05.26
  • Andrea Bronzini
  • www.mql5.com
The main point of this article is to show a practical way to implement an effective MM. This can be achieved only by using a certain kind of strategies that we need to identify and describe first. In the following we’ll cover the basic concepts of how to build such a strategy and we’ll point out the common mistakes which always end up in draining a trader’s account.
 
JD4:

Explaining money management for some might be the simplest thing in the world, not so much for me.  Basically Money Management (or MM) is a short way of explaining only pay out as little as possible and bring in as much as you can.  Explaining how to accomplish that is less easy to explain.  One way of looking at it I have heard explained is knowing when you should cut your losses, and when to let your profits ride (get as high as they can on the trade you are in).  Different people accomplish this different ways.  Some people are day traders, and will sit there all day in front of the screen, paying attention to how their thoughts or their system tells them IF they should even get into a trade or not, and if so, at what price point.  That experience they have, or a trading system for some, also tells them at the top end when to exit the trade.  It also has the flip side, of knowing when you are in a trade, and it goes against you, when you should exit, or if it is a minor price drop and getting out will basically lose you money because after this small price drop, the price is going to jump up 10 times what it went down.  If you exited the trade then, you would have missed out on all those profits.

That is where the money management part comes in.  There are times when you will lose money on a trade.  Unless you are inhumanly lucky, that is the only 100% guaranteed thing in trading.  The money management part as it applies here is knowing when to get out of a bad trade, even though you would be losing money on the trade.  If you do not do this part right, you can lose your entire account in one trade.  There is no way every single time to get every single cent out of every trend that happens.  The trend trading systems out there all have different ways of determining if a trend is happening, with support and resistance lines, history charts, and a whole bunch of different indicators with different names and different items that they are showing you, the trader.

The thing with any of these systems or indicators or any of it, is there is no magic solution to trade on every single tradeable item on every single time frame under all market conditions.  That is where the Money Management part comes in to play.  The day traders might not have something they specifically call it, but that is what makes a day trader successful, knowing when to call it quits on a bad trade, and knowing when to get out on a good one before it turns around and becomes a bad one.  What us (I hate to use this term but...) "casual" traders have to make use of is the same idea if we sit there and "day trade" a few hours a day or else use a system that has money management of some sort built into it.

You should be writing blogs and articles.  ;)
 
Francis Dogbe:
You should be writing blogs and articles.  ;)
Agreed
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