A trader\'s money management system

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c03 JWBK182-McDowell April 25, 2008 15:41 Printer: Yet to come

24 A TRADER’S MONEY MANAGEMENT SYSTEM

repeated small successes), that skill in preparation (which was motivated

by a fearful mindset) may be your greatest asset.

Another way to look at a weakness is to realize that our minds are an

amazing thing. You can rewire certain thought processes to change your

belief system and even change some of your weaknesses. Now, this may

not be possible in all cases, but by using certain techniques, it is possible

to rewire your brain.

For example, suppose one of your nagging weaknesses is anxiety that

creates paralysis and prevents you from implementing your plan. You can

rewire your thinking to reduce the anxiety, possibly using relaxation tech-

niques, or you could adjust your trading plan so it is not as aggressive.

With behavior modification, the anxiety may simply disappear and may no

longer be an issue.

Of course, your strengths are a different matter. You probably know

what they are. Maybe your skills with computers are exceptional and make

it easy for you to produce fantastic technical charts. Use that asset to your

advantage, and work your computer savvy into your plan. Maybe your

analysis abilities on fundamentals have an intuitive knack for being on

target—so again, work that positive strength into your plan.

Capitalizing on your strengths and weaknesses will develop your risk

psychology and will make it easier for you to implement your money man-

agement plan more effectively and consistently.

YIN AND YANG OPPOSITES DEFINED

There is a Chinese philosophy of yin and yang that basically illustrates the

opposites in our universe, such as strength and weakness. These opposites

are very telling. This philosophy believes that there is no such thing as 100

percent black or 100 percent white, and that black and white (and all op-

posites) coexist in nature in an intertwined harmonious circle shape.

The yin and yang image in Figure 3.1 presents a small white circle float-

ing in the black area and a small black circle floating in the white area. The

belief is that there is a little bit of the opposite that exists in every universal

element. Characters in a book or movie are never all bad or all good (ex-

cept maybe on soap operas). There is usually a little diversity thrown into

the characters to make them more interesting. The Chinese believe that in

the universe, the same applies: Nothing is 100 percent black or white.

With that said, neither yin nor yang is either good or bad; they just are

what they are. This is similar to your strengths and weaknesses; they are

not necessarily good or bad. Acceptance of what they are is valuable in

your progress as a trader in the markets.