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: Optimism prevailed, hurting US Dollar demand
The EUR/USD pair advanced for a third consecutive week, accumulating a measly 160 pips in that period. The pair trades around 1.0760 ahead of the close after tumultuous headlines failed to trigger a clear directional path.
GBP/USD declines below 1.2550 following NFP-inspired upsurge
GBP/USD struggles to preserve its bullish momentum and trades below 1.2550 in the American session. Earlier in the day, the disappointing April jobs report from the US triggered a USD selloff and allowed the pair to reach multi-week highs above 1.2600.
USD/JPY bounces of key level in softer NFP print
The Japanese Yen is set to lock in a staggering performance for this week against the US Dollar. The Yen has appreciated over 3% following Japan’s intervention to propel the currency and the Fed’s less-hawkish rhetoric. The US Dollar Index slips below 105.00 with softer NFP print.
Editors’ Picks
AUD/USD extends its upside above 0.6600, eyes on RBA rate decision
The AUD/USD pair extends its upside around 0.6610 during the Asian session on Monday. The downbeat US employment data for April has exerted some selling pressure on the US Dollar across the board. Investors will closely monitor the Reserve Bank of Australia interest rate decision on Tuesday.
EUR/USD: Optimism prevailed, hurting US Dollar demand
The EUR/USD pair advanced for a third consecutive week, accumulating a measly 160 pips in that period. The pair trades around 1.0760 ahead of the close after tumultuous headlines failed to trigger a clear directional path.
Gold holds below $2,300, Fedspeak eyed
Gold price loses its recovery momentum around $2,295 on Monday during the early Asian session. Investors will keep an eye on Fedspeaks this week, along with the first reading of the US Michigan Consumer Sentiment Index for May on Friday.
Bitcoin Cash could become a Cardano partnerchain as 66% of 11.3K voters say “Aye”
Bitcoin Cash is the current mania in the Cardano ecosystem following a proposal by the network’s executive inviting the public to vote on X, about a possible integration.
Week ahead: BoE and RBA decisions headline a calm week
Bank of England meets on Thursday, unlikely to signal rate cuts. Reserve Bank of Australia could maintain a higher-for-longer stance. Elsewhere, Bank of Japan releases summary of opinions.
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