Understanding the simple rules of Money Management

Part.1 - The Risk-to-Reward ratio.

A Trading Plan is often the thin line between success and failure in the markets & the ‘Trading Plan’ must incorporate the 3M’s (Money, Mind & method…in that order).
From these 3M's, it is “Money Management” which is the most important part of a trading plan…and ironically the most ignored.
If a trader follow the 2 basic rules of money management, it increases the probability of success –

1.) The Risk-to-Reward ratio.
2.) Position sizing - The ideal exposure of the trading capital.

In the first part of this series, we will have a look at the Risk-to-Reward ratio, understand the importance of this ratio and learn how to implement it in the “Trading plan”.