The Importance of Money Management
Sound money management protects your trading capital from large losses that can lead you to lose your entire trading account.
Many new traders fail because of committing a range of typical money management mistakes. Risk management allows you to deal with performance downturns and it will preserve your trading account during these times, enabling you to carry on trading.
The core principle of money management teaches that you should always only risk a very small portion of the money that you have to trade with on any single trade. Professional traders recommend to risk only between 1% to 2% of an account on a single trade.
Limiting your risk per trade to a maximum of 1-2% of your whole account greatly reduces the effect of losing streaks, as you will preserve the majority of your trading account.
Risking only 1% on each trade means you can lose twenty trades in a row and still retain over 80% of your starting capital. If you were to risk 5% per trade, after twenty losing trades there would be less than 40% of your original starting capital left.