A trader\'s money management system

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c14 JWBK182-McDowell April 25, 2008 16:23 Printer: Yet to come

Risk Management Rules to Choose From 147

 Write down your emotions and feelings prior to, during, and after the

trade is completed.


 Tabulate all totals for every day, week, month, and year of trades.


 Analyze totals at the end of each period, day week, month, and year.


 Determine adjustments that may improve performance for both your

money management system and trading system based on the facts (not

based on any distortions—avoiding the tabulation of totals can lead to

distortions—so be sure to run the numbers).


 Fill out your scorecard so that you know what is your win ratio; payoff

ratio; commission ratio; largest winning trade and largest losing trade;

average winning trade and average losing trade; largest number of con-

secutive losses; average number of consecutive losses; largest trading

account drawdown; average trading account drawdown; and percent

of profit or loss on account each and every period.


 Other:

WRITE IT DOWN

Take the rules that you have designed for yourself and write them down.

Type them into your computer, hand-write them in a notebook—whatever

works for you. The process of writing your rules down will rewire your

brain with this new information (or modified old information from an ex-

isting plan) and will make the pathways more clear.

Now the minute you have drawdown, your brain knows what to do.

You know what your scaling out rules are, your rules for risk percent on

each trade, trade size rules, and so on. Write it down now, since this step is

important. It is the step where you make the commitment to follow the

money management system you just designed, and you are telling your

brain what the plan is.