A trader\'s money management system

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c13 JWBK182-McDowell April 25, 2008 16:20 Printer: Yet to come

Know Thyself—Your Risk Profile and Discipline Profile 135

There is no good score or bad score; this is just a way to determine

what will work best for your money management plan. You will come out

with a score of 30 to 90 and your score will give you an idea of how to

assess your risk management plan.

Risk Profile Score:

30–50 point score:You are in a position to test taking on more risk,

and it might be important to push the envelope on occasion and in-

crease percent of capital at risk. If you have been risking 2 percent, you

may try risking 3 percent or more if you are consistently profitable. If

you do have a period of drawdown, immediately reduce your risk.


50–70 point score:You are right on target and have an average risk

profile. Steady as she goes.


70–90 point score:You are in a position to take on less risk. Test

reducing your percentage of capital at risk to see if it improves your

bottom line. For example, if you are trading with 2 percent capital at

risk, reduce to 1.5 percent. Watch out for overtrading. Reduce your risk

percentage quickly the minute you experience drawdown.

HOW DISCIPLINED ARE YOU?

It is often said that traders cannot be consistently successful without be-

ing disciplined. This applies to both your money management system and

to the discipline to carry out your trading plan. Often emotions can come

into play, procrastination, fear, and anxiety. If you traditionally have dif-

ficulty with maintaining discipline and tend to be more of a spontaneous

free thinker, you will need to focus on the plan and spontaneously stick

to it.

Your Discipline Profile

Here we want to look at your personal tendencies to determine if you will

need to work at being disciplined or if it will come more naturally. Again,

we have a checklist with a score that will give you an idea of where you are

on the spectrum:

1.Are you able to be punctual?

a. Always on time (5 points)

b.Sometimes on time (10 points)

c.Never on time (15 points)