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  • Money Management in Breakout Trading

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    Vetri J
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    Nick Leeson suffered losses of $2.2 billion from a long position in the Nikkei 225 index for Barings Bank, leading to the bank's collapse in 1995 due to a lack of money management controls. Proper money management is the key to successful trading, as external events can significantly impact markets. Traders should limit their risk to 10% of capital per trade, deploy no more than 10% of capital in all open positions, and use tight stop losses to limit losses to 0.5-2% of total capital per trade.

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    Nick Leeson suffered losses of $2.2 billion from a long position in the Nikkei 225 index for Barings Bank, leading to the bank's collapse in 1995 due to a lack of money management controls. Proper money management is the key to successful trading, as external events can significantly impact markets. Traders should limit their risk to 10% of capital per trade, deploy no more than 10% of capital in all open positions, and use tight stop losses to limit losses to 0.5-2% of total capital per trade.

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    29 views1 page

    Money Management in Breakout Trading

    Uploaded by

    Vetri J
    Nick Leeson suffered losses of $2.2 billion from a long position in the Nikkei 225 index for Barings Bank, leading to the bank's collapse in 1995 due to a lack of money management controls. Proper money management is the key to successful trading, as external events can significantly impact markets. Traders should limit their risk to 10% of capital per trade, deploy no more than 10% of capital in all open positions, and use tight stop losses to limit losses to 0.5-2% of total capital per trade.

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    © All Rights Reserved
    Download as TXT, PDF, TXT or read online from Scribd
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    of 1

    Any person can quickly come up with a technical system to take trades.

    However, money management is the primary key to successful trading.

    Do you know why?

    In 1995, the Barings Bank, the oldest merchant bank in the UK, went bankrupt after
    rogue trader Nick Leeson suffered a loss of $2.2 billion.

    Nick had a massive long position in Nikkei 225 and he kept on averaging. At the
    same time, an earthquake hit Japan and his losses multiplied to $2.2 billion which
    led to the collapse of Barings.

    Anything can happen in the world which will have a direct impact on the stock
    market. Hence, it is always better to control the money we will lose if our trade
    fails.

    Hence, money management is an important aspect of trading.

    Positional breakout traders should have clarity on the below questions:

    How much to deploy/risk per trade?

    How much % of the capital to deploy in trades at any point in time?

    How much to deploy/risk per trade?

    I suggest a simple technique for this. For one trade, use only 10% of your capital
    irrespective of the risk.

    For example, if you have Rs.1,00,000 as your capital and if you finalize a script
    ABC, assume your entry price is Rs. 100.

    Then 10% of your capital is Rs.10,000. So, you can buy 10,000/100 = 100 Shares.

    Using this approach, your entire capital percentage risk per trade varies between
    0.5% - 2% (based on how deep your stop-loss is), which is fine.

    Some people suggest to risk only 1-2% of your capital per trade, and they don't put
    an upper cap on the capital. It brings some confusion, and you will not be able to
    opt for more trades.

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