A trader\'s money management system

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intro JWBK182-McDowell April 25, 2008 16:39 Printer: Yet to come

Introduction 3

these in detail in the coming chapters, but ponder the following top six for

now:

1.Trade risk

2.Market risk

3.Margin risk

4.Liquidity risk

5.Overnight risk

6.Volatility risk

THE LAYOUT OF THIS BOOK

This book is laid out in five parts, all designed to help you develop your

own money management system. Following is a summary of the parts so

you will have an understanding of where to get what you need at any given

point along the way. Make the book work for you. Refer to the table of

contents if you want to dive in to one specific topic, you can fluidly move

from one part of the material to the other, depending on your experience

level and needs.

Part One: Psychology of Risk Control

The mind is a powerful piece of the puzzle in our quest for financial suc-

cess. There are times when we can be our own worst enemy. Missed op-

portunities, poor choices, and angry rebellion at the market can all create

disaster.

And it is working on the underlying psychology that drives our trad-

ing and investing choices that can be the magic key that helps us break

through stagnant or nonexistent profits. Here you will see what issues to

look for and how to address them in order to more effectively implement

your money management system.

Part Two: Stop-Loss Exits

If I had a nickel for every time a trader e-mailed me about losing large

sums of money and not having a stop-loss exit in place—well, I’d have a lot

of nickels! In any event, sometimes it isn’t that an individual doesn’t know

they need a stop-loss exit in place; instead it’s that they don’t know how to

effectively choose one. Or, they choose one and then don’t adhere to it for

psychological reasons (see Part One).