Every battle is won before it is fought. This phrase implies that planning and strategy - not the battles - win wars.

Do you plan your trade?

What is your risk management?

Dr Alexander Elder's use 2% rule of trading capital. Essentially you determine your entry and top loss price. The difference between these two prices is your risk per share. You then can calculate how many shares you can buy if your total risk is not more than 2%.

Example:

Trading Capital = $50,000

2% rule of cut lose = $1,000

If you want to trade NOL share, how many shares can you buy with a 2% cut lose plan?

NOL share price at $0.82

Cut lose if NOL falls to $0.79.

Target profit is $0.92.

How many chares can I buy if I do not want to lose more than $1,000 dollar?

Risk per share = $0.82 – $0.79 = $0.03

2% of $50,000 = $1,000

Max number of shares = $1,000/$0.03 = 30,000 shares (which are 30 lots)

You can only buy 30 lots (maximum) of NOL at $0.82.

Total cost will be $24,600.

If NOL trade did not go well and you have to cut lose at $0.79. Your total lost will be:

$0.03 x 30,000 = $900

If NOL trade hit your target, your total profit will be:

$0.10 x 30,000 = $3,000

Money management is the key.

It is simple but many traders find it had to keep it due to different psychological reasons (greed, fear, forgetful, laziness etc).

But I hope you will practice it after reading this blog.

Talk to you soon.

Best wishes,

Divergence Trader

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