Find idea of how money management understanding improves your profit.

In the context of trading, money management essentially means using tactics and procedures to limit risk while boosting gain. To do this, traders typically adjust the trading position size by increasing or decreasing it.

Most traders begin their trading careers with a “Big Shot” trade – the one that will make them millions and allow them to retire young and live freely for the rest of their life. Who can forget when George Soros “broke the Bank of England” by shorting the pound and profited $1 billion in a single day? However, the harsh reality for most retail traders is that, instead of experiencing the “Big Win,” most traders are victims of a single “Big Loss” that can put them out of the game for good.

Traders can prevent this destiny by using stop losses to manage their risks. In Jack Schwager’s book “Market Wizards”, day trader and trend follower Larry Hite quote this practical trading advise: “Never risk more than 1% of total equity on any trade. By only risking 1%, I am indifferent to any individual trade.” This is an excellent strategy. A trader can be wrong 20 times in a row and still maintain 80% of the her equity.