MONEY MANAGEMENT
"Take every gain without showing remorse about missed profits, because an eel may escape sooner than you think."
--- Joseph de la Veag, 1688 ... in an early manual on trading.
"MONEY MANAGEMENT" simply means keeping losses and drawdowns to an absolute minimum while making the most of opportunities for profit.
If you keep your losses to a minimum, you'll live to trade another day and you'll have the capital to take advantage of opportunities
Stop looking for the perfect exit strategy. Profits are taken, not given. You must take profits when they are there, even if it means getting stopped out immediately. People tend to focus on the one time in 20 where they really did leave money on the table instead of looking at all of the other trades where getting out was the right thing to do.
The only thing you should look at is if the trade added to your bottom line or not.
Ultimately, the way to minimize risk is to be in the market the shortest amount of time. The longer you are in the market, the more exposure you have to "price shock." If you don't take your profits when you have them, the market will usually take them back.
Your first goal in trading should be to become a breakeven trader.
With time and practice, the losses will become smaller and might even become scratches (no loss at all.) With luck and experience, there will also be a small hand full of large trades in a month. In this respect, trading is strictly a game of preservation of capital.
* Your own preconceived opinions about where the market might go will be your biggest enemy.
* Don't carry losing positions overnight.
* Correct mistakes immediately. (Don't try to trade out of it.)
* If the market offers a windfall profit on a trade, you must lock it in! This means take your profits or use a trailing stop. It is vitally important to be defensive and not give back profits when swing trading.
If you wait for good setups and follow the rules, it usually doesn't take long for a winning trade to make back a string of losses, provided you kept the losses small.
Trading is like playing poker, the real discipline is in waiting for the right hands. You don't have to play every hand but you must bet aggressively when you have the best hand. Don't bet money until the odds are in your favor.
Source: Tools And Tactics For The Master Day Trader |
