Fixed percent money management is a wonderful money management technique used by many traders with much success. As with all money management strategies, there are pros and cons, and not all money management strategies are suitable for all traders. This article can help you decide whether or not fixed percent money management is right for you.
Fixed percent money management is one of the easiest anti-martingale money management strategies that a trader can apply. Fixed percent money management requires a trader to designate a fixed percentage of equity as the maximum risk per trade. When an account is going down, this percent will represent a lower dollar amount of risk based on the account size. When the account is going up, this percent will represent the higher dollar amount based on the account size.
A trader using fixed percent money management will typically set a fixed percent of equity that is somewhere between 1% and 5% of their account. The 2% rule is very common, and simply means that a trader will risk 2% of their account at any given time. You do not have to use 2%, though. Your percent could be 1%, 2%, 5%, 10%, and should reflect your risk tolerance and profit objectives. A trader trading a $100,000 account, and risking 2% would be risking $2,000 per trade. Is this a risk you would be comfortable with? If so, this is probably a good percent equity to risk. If you are not comfortable risking $2,000 on a trade, you might want to consider a 1% fixed percentage.
Fixed percent money management is a conservative, anti-martingale method. It is also risk oriented, which means it focuses on risk, but not necessarily growth. It is very popular with fund managers, and with brokers who are trying to give some guidance to traders who are just getting started. However, it is very easy for all traders to apply and use. However, keep in mind that you may experience slow growth with this method even when you are trading successfully. It is also difficult to apply in Futures and Forex trading.
There are two types of traders who might benefit most from fixed percent money management. You might want to consider a fixed percent money management strategy if you are trading a very large account. It could be an appropriate way to manage a larger position or portfolio. You might also consider fixed position money management if you have a very low risk tolerance, and you are not willing to be too aggressive.
If you would like to learn more about fixed percent money management, and other money management techniques, you can go to www.RockwellTrading.com, and check out our money management and trading resources.
Markus Heitkoetter is the author of the international bestseller “The Complete Guide To Day Trading and a professional day trading coach. For more free information on day trading visit his website http://www.rockwelltrading.com