Money Management: Survive to Profit
The first rule of trading: don't blow up. You can't profit if your account is at zero. Money management ensures you stay in the game long enough to become profitable.
Position Sizing Rules
1%Conservative — ideal for beginners
2%Standard — balanced risk/growth
3-5%Aggressive — only with proven edge
10%+Gambling — expect account death
Formula: Stake = Account Balance × Risk Percentage
Example: $200 account × 2% = $4 per trade
Daily & Weekly Limits
- Daily loss limit: 5% of account. Hit it = stop trading today.
- Weekly loss limit: 10% of account. Hit it = review strategy.
- Monthly loss limit: 20%. Hit it = take a break, reassess.
These limits prevent catastrophic streaks from destroying your capital.
Drawdown Recovery Math
Losses require bigger percentage gains to recover:
| Loss | Required to Recover |
|---|---|
| 10% | 11% |
| 20% | 25% |
| 30% | 43% |
| 50% | 100% |
| 75% | 300% |
This is why preventing large drawdowns matters more than chasing big wins.
Scale Up Properly
As account grows, increase stakes proportionally:
- $100 account at 2% = $2 stakes
- Account grows to $150 = increase to $3 stakes
- Account drops to $80 = reduce to $1.60 stakes
Don't: Increase stakes after losses to "recover faster." That's how accounts die.
Withdrawals
Regularly withdraw profits:
- Withdrawing proves the system works
- Reduces emotional attachment to account
- Protects profits from future losses
Strategy: Withdraw 50% of profits monthly. Reinvest other 50% for growth.