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 looks offered below 1.1900
EUR/USD keeps its bearish tone unchanged ahead of the opening bell in Asia, returning to the sub-1.1900 region following a firmer tone in the US Dollar. Indeed, the pair reverses two consecutive daily gains amid steady caution ahead of Wednesday’s key US Nonfarm Payrolls release.
GBP/USD slips back to daily lows near 1.3640
GBP/USD drops to daily lows near 1.3640 as sellers push harder and the Greenback extends its rebound in the latter part of Tuesday’s session. Looking ahead, the combination of key US releases, including NFP and CPI, alongside important UK data, should keep the pound firmly in focus over the coming days.
USD/JPY drops toward 155.00 as focus shifts to US data
USD/JPY meets fresh supply and inches closer toward 155.00 in the Asian session on Tuesday. The Japanese Yen holds the upper hand over the US Dollar after Japanese Prime Minister Sanae Takaichi led the ruling Liberal Democratic Party to a historic landslide win and on intervention talks. Traders brace for key US economic data that could offer more clues on the Federal Reserve's monetary policy.
Editors’ Picks
AUD/USD meets initial resistance around 0.7100
A decent rebound in the US Dollar is behind the AUD/USD’s daily pullback on Tuesday. In fact, the pair comes under modest downside pressure soon after hitting fresh yearly peaks in levels just shy of 0.7100 the figure on Monday. Moving forward, investors are expected to closely follow the release of Chinese inflation data on Wednesday.
EUR/USD looks offered below 1.1900
EUR/USD keeps its bearish tone unchanged ahead of the opening bell in Asia, returning to the sub-1.1900 region following a firmer tone in the US Dollar. Indeed, the pair reverses two consecutive daily gains amid steady caution ahead of Wednesday’s key US Nonfarm Payrolls release.
Gold the battle of wills continues with bulls not ready to give up
Gold remains on the defensive and approaches the key $5,000 region per troy ounce on Tuesday, giving back part of its recent two day. The precious metal’s pullback unfolds against a firmer tone in the US Dollar, declining US Treasury yields and steady caution ahead of upcoming key US data releases.
Bitcoin's downtrend caused by ETF redemptions and AI rotation: Wintermute
Bitcoin's (BTC) fall from grace since the October 10 leverage flush has been spearheaded by sustained ETF outflows and a rotation into the AI narrative, according to Wintermute.
Dollar drops and stocks rally: The week of reckoning for US economic data
Following a sizeable move lower in US technology Stocks last week, we have witnessed a meaningful recovery unfold. The USD Index is in a concerning position; the monthly price continues to hold the south channel support.
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