A trader\'s money management system

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c12 JWBK182-McDowell April 25, 2008 16:15 Printer: Yet to come

102 A TRADER’S MONEY MANAGEMENT SYSTEM

Some of my students ultimately pour their statistics into an Excel

spreadsheet and do some additional number crunching, but they report

back to me that they appreciate the hand-written input phase. One student

says that when he inputs the numbers into his Excel spreadsheet, it acts as

anaudit, since there are times when inconsistencies occur and, as it turns

out, corrections need to be made.

AYEARINTHELIFEOFATRADING

STUDENT

In this chapter are illustrations ofThe Trader’s Assistanttrade posting

cards and ledgers filled out and in actual use. These are examples from a

real live first-year trading student of mine that has paper traded theApplied

Reality Trading(ART) software for one full year. This student was gener-

ous enough to share these records with me, and now with you, so that we

could see an entire year of actual simulated trading, including the ups and

downs and the learning process.

Keep in mind that this student day trades the Nasdaq 100 and the fu-

tures market, butThe Trader’s Assistantrecord keeping system works on

any market and any time frame. So if you are not a day trader and you don’t

trade these markets, this record keeping system will work equally well for

you. Just apply the same principles to your own market and time frame.

This student has now proceeded to live trading with real money, but

the practice of paper trading for one full year has provided him with a

foundation of historical data to confidently follow through with his money

management system. From this data he is able to determine all the vital

statistics needed to be successful.

As most of my students know, I am a big fan of paper trading, because

I see how well it works. A number of trading professionals discount the

paper-trading process as not valuable because they believe you won’t feel

the same emotions as you do with real money. But, I have to disagree,

because if you are treating the paper trading as your test before you go

live in the market, you will feel similar emotions. You want to pass the test,

and you want to go live, so any setback will generate similar feelings to the

real thing.

Now, you don’t necessarily need to paper trade for an entire year, but

you do want to paper trade until you prove your profitability for a consis-

tent period of time and prove that the system you are using is compatible

with your personality. If for some reason you are absolutely against paper

trading, use amini accountinstead. This means you should trade only a

small portion of your actual trading capital first to get your feet wet.