A trader\'s money management system

c05 JWBK182-McDowell April 25, 2008 15:51 Printer: Yet to come

44 A TRADER’S MONEY MANAGEMENT SYSTEM

On the road to profitability, let’s agree that stop-loss exits are needed.

Then we need to determine how to effectively select stop-loss exits to avoid

excessive stop-outs. The more trades you place, the more commission fees

you will pay, and the higher your costs of doing business will be. So right

there you can increase your profitability if you increase the number of win-

ning trades (your win ratio), thereby decreasing your commission expense.

This is not a book about developing a trading system, yet good money

management is eternally linked to the system or approach you use. So,

choose your system carefully, and be sure that your system is able to iden-

tify high-probability stop-loss exits that will reduce your number of stop-

outs. The best way to do this is develop a stop-loss strategy that takes

into account current market dynamics. (See more about stop-loss exits in

Chapter 7.)