Why is Money Management important?

The subtleties of money management unbeknownst to many novice traders is a great cause of concern since it is rarely delve about . Why is that so? Simply because the topic doesn't sell and it doesn't interest readers,unlike strategies,systems and psychology.Majority of the people either hope to find a quick way to make money or the next strategy that has just been "discovered". (or so they say)

I realized that certain sites construe this topic to be a daunting task to understand.I wonder why...I'll give you a straight answer why Money Management is important,there's nothing to beat around the bush really...:

1st)As you have to come to realize on my earlier article :Trading is a random distribution between wins and losers.

After you have accept the 1st rule,you will understand the 2nd rule,which is...

2)It keeps you in the game to play another day.Your money management should be structure in a way that allows you to gradually increase your portfolio even when you face consecutive losing trades.,and during the occasional losing streak where most of us will face,it should be a minor draw down in your overall increasing portfolio.

That is basically the philosophy behind Money Management.

But if you want a more detail answer on Money Management,I bring you...
Michael Covel(Author of “The Complete Turtle Trader”)

Money management is a defensive concept. It keeps you in the game to play another day. For example, money management tells you whether you have enough new money to trade additional positions. Don’t confuse money management with stop placement. Stop placement does not address the how much question.
Money management is risk management. Risk management is the difference between success or failure in trading. Trading correctly is 90% money and portfolio management, a fact that most people want to avoid or don't understand. Once you have the money management down though, your discipline and psychology is 100% of your success.
Money management optimizes capital usage. Few have the ability to view their portfolios as a whole. Even fewer traders and investors make the move from a defensive or reactive view of risk, in which they measure risk to avoid losses, to an offensive or proactive posture in which risks are actively managed for a more efficient use of capital.

The common percentage use among retail traders are 5% of their total portfolio on any one trade.Some 4%,some 3%,some even 0.5%...In my humble opinion,it doesn't matter what percentage you use for a trade really, as long you're able to "stay in the game" for the long term and be there when you're anticipating a profitable move.

Cheers
Hyzel

"Money management is like sex: Everyone does it, one way or another, but not many like to talk about it and some do it better than others. But there's a big difference: Sex sites on the Web proliferate, while sites devoted to the art and science of money management are somewhat difficult to find."

Gibbons Burke