Building Automated Trading Strategies October 2018 | Page 28

Money Management
Money management refers to the process of managing the available capital of
a trading account. The key components of money management include
position sizing and trading orders (stop-loss, take-profit, trailing stop, OCO,
etc.). Nevertheless, money management is a broader concept that also
incorporates tens of other important parameters.
Position Sizing
Position sizing means the size of a position within a portfolio. Position sizing
may refer to a percentage or a dollar value. The money management
component of an automated system applies position sizing in order to
determine how many units of an asset it will buy/sell.
There are many methods for calculating position sizing.
Trading -The 1% and 2% Rules
If you trade one single large account, you need some basic rules. Many
professional traders follow the 2% rule and that means no trading position
should be worth more than 2% of a portfolio. Other larger asset managers
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