A trader\'s money management system

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

106 A TRADER’S MONEY MANAGEMENT SYSTEM

of over 50 percent. Of course he is paper trading, and it is not exactly the

same as live trades. But, it’s been my experience that when my students

do this much paper trading prior to entering the market, they have already

honed their approach, and their live market results are very similar to their

paper trading.

The bottom line is that you want to beat the market and then some,

so go for it and make it happen. Use the power of intention and generate

profits.

MONTHLY TRADE LEDGER EXAMPLES

As we focus on the profit/loss results of my student, we are going to look at

both a profitable month and an unprofitable month. This can show how the

vital statistics can dramatically vary from month to month. It is important

that your trading psychology is developed so that one bad trade, one bad

day, one bad week, or one bad month does not send you into a tailspin or

into paralysis.

Learn from the good trades and from the bad trades, and use your

record keeping to do that. Observation is the tool that scientists and doc-

tors use to develop giant discoveries and breakthroughs in their work. You

are not different, you may be reviewing your records and have one of those

aha! or eureka! moments that may change the future of your trading. Em-

brace these moments and cherish them. By doing so, you are likely to have

more of them to come.

Monthly Trade Ledger for January 2007,

15 Percent Gain

Let’s start by reviewing the monthly trading ledger for January (see

Figure 12.2). This was one of the most profitable months of the year, and

ideally, we would like to replicate these results as often as possible. Here

are the eight vital statistics for the month of January:

1.Win ratio: 46 percent

2.Payoff ratio: $1.91 win to $1.00 loss

3.Commission ratio: 14 percent of gross profits go to commission

4.Largest winning trade: $2,009.14

5.Largest losing trade: ($475.86)

6.Average winning trade: $468.94