Brandon Wendell, CMT
Brandon Wendell
Receiving emailed questions from students is always encouraging. Replying to them keeps me sharp as a trader and instructor. I recently received the following question which I thought would be great to share with everyone.
Hi Brandon,
If you have the time, can you help me understand how the below mentioned 3 terms are different from each other please?
Risk management
Trade management
Money management
This is an excellent question. Many traders think that those terms are synonymous. They refer to three different, distinct things. Online Trading Academy’s courses teach traders and investors what these terms mean and how they are critical to your market survival.
Risk management is the assessment and controlling of risks in the markets. Risk management involves identifying dangers in taking a particular trade such as location on the curve, location of supply and demand zones, and the trend. Managing risk means that when you eventually take the trade, you have identified the dangers and have only taken the trades that have a high probability for success.
Trade management is the act of managing a trade in process according to the rules you have set in your trading plan. You should have a set of rules that you will act upon while you are in a live trade or investment. These rules should include how you will move a stop or adjust to a trailing stop. It will also include rules for profit taking at your target or how your scale out based on having multiple targets.
Finally, money management is important to your being able to trade long term. If you do not protect your money, you will not have it to trade with. Money management requires you to decide how much capital you will risk on every trade. Risk too much and your losses may pile up and prevent you from being able to trade in the future. Risking too little and you are not maximizing your ability to earn from the markets. There is a right number for each trader and each trade that you must figure out.
This has just been a basic overview and definition of the terms. In our courses at Online Trading Academy, we dive deep into each of these three management areas. Come join us in one of our courses and discover how you can improve your trading and manage your market success.
Neither Freedom Management Partners nor any of its personnel are registered broker-dealers or investment advisers. I will mention that I consider certain securities or positions to be good candidates for the types of strategies we are discussing or illustrating. Because I consider the securities or positions appropriate to the discussion or for illustration purposes does not mean that I am telling you to trade the strategies or securities. Keep in mind that we are not providing you with recommendations or personalized advice about your trading activities. The information we are providing is not tailored to any individual. Any mention of a particular security is not a recommendation to buy, sell, or hold that or any other security or a suggestion that it is suitable for any specific person. Keep in mind that all trading involves a risk of loss, and this will always be the situation, regardless of whether we are discussing strategies that are intended to limit risk. Also, Freedom Management Partners’ personnel are not subject to trading restrictions. I and others at Freedom Management Partners could have a position in a security or initiate a position in a security at any time.
Editors’ Picks
EUR/USD rebounds from session lows, stays below 1.1650
EUR/USD is recovers modestly from session lows but remains in the red below 1.1650 in European trading on Thursday. The pair faces headwinds from a renewed uptick in the US Dollar amid a negative shift in risk sentiment. Surging energy prices due to the Middle East war keep the bearish pressure intact on the Euro. The US Jobless Claims data are next of note.
GBP/USD stays weak near 1.3350 amid UK stagflation risks
GBP/USD sticks to losses near 1.3350 in the European session on Thursday. The Pound Sterling loses ground amid fears that the United Kingdom economy could face stagflation risks due to higher energy prices, while the US Dollar attracts fresh havem demand ahead of the US Jobless Claims data.
Japanese Yen turns upside down against US Dollar as dovish Fed bets recede
The Japanese Yen gives back its early gains and turns negative against the US Dollar during the European trading session on Thursday. The USD/JPY pair rises to near 157.35 as the US Dollar resumes its upside journey after a corrective move. As of writing, the US Dollar Index trades 0.4% higher to near 99.15.
Editors’ Picks
EUR/USD rebounds from session lows, stays below 1.1650
EUR/USD is recovers modestly from session lows but remains in the red below 1.1650 in European trading on Thursday. The pair faces headwinds from a renewed uptick in the US Dollar amid a negative shift in risk sentiment. Surging energy prices due to the Middle East war keep the bearish pressure intact on the Euro. The US Jobless Claims data are next of note.
GBP/USD stays weak near 1.3350 amid UK stagflation risks
GBP/USD sticks to losses near 1.3350 in the European session on Thursday. The Pound Sterling loses ground amid fears that the United Kingdom economy could face stagflation risks due to higher energy prices, while the US Dollar attracts fresh havem demand ahead of the US Jobless Claims data.
Gold climbs near $5,200 as Iran war fuels safe-haven demand
Gold price extends its gains for the second successive session on Thursday as traders seek safety amid the ongoing war in the Middle East. US and Israeli strikes across Iranian territory and widespread Iranian missile and drone retaliation across the Middle East, including attacks on regional targets and military sites, prolong the crisis and its impact.
Three reasons to be bearish on Bitcoin
Bitcoin is holding up well taking into account the uncertainty stemming from the Middle East. Despite this week’s rally, the long-term outlook remains bearish. Here are three reasons why I think the storm for the largest cryptocurrency isn't over yet.
FX alert: When Energy still writes the macro script the Dollar holds the pen
The market is quietly sliding back into the trade nobody wanted to own, but everyone now has to respect again. The no quick off-ramp trade. Yesterday’s bounce in risk assets already looks less like a turning point and more like a classic relief rally in a market that briefly inhaled before realizing the room was still on fire.
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