If I were to define the most important Money Management rule in one sentence, it would be this:
Make sure you have the money tomorrow to invest with.
It is that simple. Every day, do whatever you should according to your trading strategy (analysis and entry systems), but make sure that no matter what happens today, tomorrow there is money left for new investment opportunities.
I cannot emphasize enough how important this attitude is. Because we are making sure that we have money for investment tomorrow no matter what, we cannot fail. Of course, this simple rule is just the basic foundation for a robust money management strategy, because it implies some important points:
- In order to make sure we have the money tomorrow, we have to make sure that our maximum possible risk (and therefore our loss) is limited today.
- Because we must have the money tomorrow no matter what, we must also protect against force majeure situations, when all our trade protection can fail (15th of January was such an event, as stop losses were not honored by the market, since it traded thousands of pips away in just one tick). It implies that a complete loss of this trading account should still leave us with enough money to comfortably open a new account the next day and continue trading.
There are many ways how each trader will calculate his risks, position sizes, but in my opinion, if this one simple rule is not honored and he leaves even a distant possibility of losing it all, the money management strategy is not planned properly.