Part 4 : Money Management 

Dictates whether an investor will be successful in any kind of investment or not. Therefore applying money management is a must.

There are two rules

1) Never lose money

2) never forget rule # 1.

Never lose money

Losses can and do happen in trading. Never lose money means never lose more than 50% of the original starting capital. If this should happen, then one must stop trading immediately.

Never forget rule # 1.

Apply money management all the time. Risk only calculated risks, not blind risks. RPTS believes, to be successful in trading, one must defend the money while the upside will take care of itself.

Starting Capital.

There is no amount too little or too much. Basically all brokerage houses would prefer the minimum of RM 5,000 of starting account but for some practical reasons, RPTS prefers at least RM 10,000. 

Starting capital should be RISK CAPITAL - meaning, if one should lose 50% of the capital, one lifestyle won't be affected. 

How many Contracts to Trade?

The formula:

Maximum Number of Contract = INT(Balance CF/X) + 1.

Note:

1) Balance CF = Balance carry Forward of a trading account.

2) X is an amount determined by type of counter traded as follows:

Note: To trade any counter, one must first provide at least enough margin to trade a contract.

Example:

Encik Ali has just opened a trading account of RM 10,000. He is bullish on MDEX Crude Palm Oil (CPO). How many contracts should he buy?

Maximum number of contracts = INT(Balance CF/X) + 1

                                         = INT(10,000/10,000) + 1 = INT(1) + 1 = 1 + 1 = 2 contracts.

Calculated Risks

The Formula:

For Buying Transaction, Calculated Risks = ((Price Done - Protective Stop) x Contract Size x Number of Contracts) + Brokerage Fees

For Selling Transaction, Calculated Risks = ((Protective Stop - Price Done) x Contract Size x Number of Contracts) + Brokerage Fees

Note: Brokerage Fees are charged according to which exchanges as:

1) Malaysian Markets - RM 150.00

2) Japanese Markets - RM 250.00

3) US dan London Markets - RM 350.00

Note: Protective stop is a level which if buying position is taken, once prices go below the level, then losses should be realized and vice-versa goes to the selling position.

Example:

Encik Ali has just opened a trading account of RM 10,000. He is bullish on MDEX CPO should the price go above 1400 and it did. he bought 2 contracts at 1405 per contract. His protective stop is at 1390. How much is his calculated risks?

Calculated Risks = ((1405 - 1390) x 25 x 2) + 300 = RM 1,050.00

Part 1 : Resam Padi Trading System

Part 2 : Technical Analysis

Part 3 : Trading Systems

Part 4 : Money Management

Part 5 : Trading Tactics

Part 6 : Trading Journal