The first goal of money management is to ensure survival. You need to avoid risks that can put you out of business. The second goal is to earn a steady rate of return, and the third goal is to earn high returns– but survival comes first.
“Do not risk thy whole wad” is the first rule of trading. Losers violate it by betting too much on a single trade. They continue to trade the same or even a bigger size during a losing streak. Most losers go bust trying to trade their way out of a hole. Good money management can keep you out of the hole in the first place.
– Alexander Elder, Trading for a Living
