Entry Condition and Money Management

Entry Condition & Money Management

• What is Entry Condition?

• Money Management

What is Entry Condition?

▪ Entry condition is the last condition that is needed to place the order. Entry condition comes in form of patterns

or - swing or candlestick pattern or price levels support resistance levels

▪ Entry condition is critical for trading as it ensures that your risk is a calculated one and reward is bigger than risk.

▪ Some of the Entry conditions are :

• break of channel/ flag.,

• break out of a range and then a pull back, at the pull back the trigger can be a candlestick pattern

• at the touch of 61% fib retracement level during correction

• at a test of last broken level which now becomes a resistance level

▪ Invalidation are points where the Entry condition pattern fails. E.g. If a candlestick pattern is reversed after you

enter, the pattern is invalidated and you should plan your stop loss around this invalidation point/level.

Money Management

As a trader, you should aim for a low risk high reward like 1:2 with a monthly win rate (for a day trader) of your

trading system being at least 55%. With 1:2 risk reward you can also have your win rate as 40% and still be

profitable. After you have achieved a risk : reward ratio of 1:2 and win rate as 55% or 1:1.25 with a win rate of

60%, your money management strategy will determine your success as a trader. To do this, follow these steps:

a. Know the average no. of trades you would do in a month. For a day trader it can be 15 -50 trades

depending upon your trading strategy.

b. Your trading system should have potential of giving at least 0.5% to 1% net returns a day consistently.

c. Decide on the overall risk on the capital (ROC) starting from 5% up to 50% . This decision is taken by

trading capital fund owner. The less the risk less will be your net monthly gain when your average no. of

trade is constant. So if the overall ROC is 5% you spread it to the average no. of trades so it is 5/20=.25 %.

To increase your monthly gain trader will have to improve on the R:R or win rate with minimum R:R as 1:2

d. When you start, risk 0.5% to 1% per trade with a risk reward of 1:2 or 1:1.5

e. Know your lot size:

Know the risk % amount of your account (account size $10,000 so risk % amount @ 1% risk = $100)

calculate pip value = Risk% amount / stop loss in pips

Pip value = risk amount / stop loss in pips. E.g. $129 your lot size will be 12.9 because 1 lot size or

volume 1 is 10 usd per pip