A trader\'s money management system

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

4 INTRODUCTION

In Part Two, we’ll clearly take you through a variety of stop-loss ap-

proaches and give you tips on how to make sure you do adhere to them

when they are hit.

Part Three: Trade Size Does Matter

Are you trading the same exact number of shares on every trade every time,

without examining the current market dynamics? It is neat and tidy to have

a nice round number of shares or contracts (100 or 1000), but it might not

be in your best interest to do so. The concern is that you may be taking on

too much risk for certain market conditions.

In this section, you’ll learn how to determine how large (or small) your

trade size should be so that you are not overextending your risk. You’ll even

be able to download theTrade Size CalculatorTMsoftware (a one-month

trial is included in your purchase of this book) to see how easy and fast it

is to calculate the best trade size for each trade.

Part Four: Record Keeping and Profit/Loss

Analysis

Record keeping may not be your favorite pastime, but it is crucial and will

pay you significant dividends down the road. If you truly detest the practice

of tallying up your profits and losses, that may be a reflection of you hiding

from your results.

This brings us back to the psychology of money management. Many

emotions can be generated by the simple process of adding up the num-

bers. This process can commonly generate fear. Fear of success (yes, it is

common to be fearful when you are actually successful at something like

trading), and fear of failure can be all too familiar.

Now is when you need to gather every molecule of discipline you have

and start running the numbers. This doesn’t mean waiting until the end of

the month and getting your calculator out. It means every day, tally up the

numbers. It’s the only way to stay honest and accountable.

To get started on your recordkeeping, we’ve include diagrams in the

book of all the trade posting cards and trade ledgers that are inThe

Trader’s Assistant,which has been honored withStocks & Commodities

magazine’s Readers Choice Award. You can photocopy these forms right

from the book and get started.

Part Five: Design Your Own Plan

This is the fun part. Here you get to customize your own plan to fit your

risk tolerance, your experience level, and your financial needs. We’ll walk