How does money management help a trader get through the black stripe

The main task of money management is not just to make a profit on individual trades but to maximize the overall result within the trading decision system. That is why the position size, entry point, and exit parameters should be adjusted depending on the quality of the trading situation, while the stop-loss is set solely based on the chart, not financial calculations.

Why the trade size should be a variable

First of all, you need to compare the potential profit with the probable risk. If the profit significantly exceeds the risk or the risk is minimal, such a trade is more attractive, and the position size can be increased. However, many beginners make the mistake of entering all trades with the same lot, which leads to rapid depletion of the deposit.

In practice, depending on the quality of the trading situation, entry points with different characteristics are identified. The first entry point is less risky but may have a less attractive risk-to-reward ratio – it is wise to enter only if the potential profit exceeds the risk by at least twice. The second entry point involves more risk but also offers a greater potential for quick results.

The starting amount should be modest but conscious

Accumulating years of experience on a demo account or micro-lots is a waste of time and energy. However, risking large sums immediately is pure recklessness. The optimal tactic: start with a modest deposit but consciously calculate the risk.

For a small account, losing 10% of the capital in the event of an unfavorable development of events on all open positions simultaneously is considered normal. This level of risk allows the capital to grow quickly with consistent execution of quality trades, and the probability of losing the entire deposit remains low. After a few months of this approach, you can increase the deposit to a size that allows reducing the risk to 3% and working more conservatively.

Black streak – a test from which no trader is insured

Positive and negative trades are unevenly distributed. The period of successful operations is replaced by a period of failures, which can last from several days to several weeks. Causes can be both in the trader himself and in the market – prolonged low volatility disorients many participants.

A young trader caught in such a period without clear capital management rules risks losing a significant part of their account. If they also use aggressive doubling tactics, then several consecutive losing trades (and this happens to everyone) can wipe out the deposit in a few days.

Rules that will save your deposit

It is necessary to set two strict limits for yourself:

Weekly: maximum allowable loss, for example 5% of the capital. When this limit is reached, all trading stops until the next week.

Monthly: double the weekly limit, for example 10% of the capital. If the monthly limit is exceeded, trading stops until the new month (although the break can be shorter than a week).

These rules guarantee that even during a black streak, a significant part of the capital will be preserved for recovery in the next period.

How to calculate risk for each individual trade

If the maximum weekly loss is 6% of the capital, then this is also the maximum allowable risk for a single trade in the most attractive trading situations. Dividing this number by three gives the minimum risk – 2%, which can be used for regular trades.

The attractiveness of a trade is determined by a coefficient calculated as the ratio of potential profit to the required stop-loss:

• Less than 1.5 – such trades are better to skip; they do not provide real capital growth and take up time
• 1.5-2 – it makes sense to enter, but with minimal risk (2%)
• 2-2.5 – more attractive trade, risk can be increased (4%)
• Over 2.5 – the best trades, maximum risk can be used (6%)

When entering at the second entry point, always apply a medium level of risk.

Additions – these are new trades

Any replenishment of an already open position should be considered as an entirely independent trade with its own risk and profit parameters, not as a continuation of the previous one.

Thus, money management is not a static set of rules but a flexible volume management system that adjusts depending on the quality of the trading situation and the current state of the deposit. Such discipline allows a trader not only to survive black streaks but also to grow capital consistently and confidently.