Chapter

28

Money Management

M

oney management is critical to success and longer‐term survivability in

trading. Without the proper application of money management, the appli-

cation of technical analysis to trading would be an exercise in futility. In this

chapter, we will cover the various issues that plague traders and explain how they

may be addressed via the proper and effective deployment of various sizing and

capital‐management techniques.

28.1 Elements of Money Management

Let us begin by asking a few basic trade‐related questions:

■ (^) Do you try to keep things simple and trade with only one lot or contract?
■ (^) Do you usually take a profit based reward to risk setup of 1:1 to 3:1?
■ (^) Do you usually place a fixed take profit order to exit?
■ (^) Do you usually risk around 2 to 5 percent per trade?
■ (^) Do you enjoy trading simultaneously on different timeframes?
le a r n i n g ob j eCt i v e s
After studying this chapter, you should be able to:
■ Understand the significance of money management and its impact on trade performance
■ Describe the difference between fixed and dynamic sizing
■ Identify and differentiate between the passive and dynamic components of a money
management system
■ Understand the effects of asymmetry on a trading system
■ Calculate the minimum winning percentage for both linear and non‐linear sizing