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c06 JWBK182-McDowell April 25, 2008 15:54 Printer: Yet to come
50 A TRADER’S MONEY MANAGEMENT SYSTEMIMPORTANT NOTE: For some advanced traders, it is beneficial to
risk more than 2 percent of their trading account. The amount these
traders risk must be carefully calculated depending on their proven
historical performance statistics. See Chapter 9 for the formulas to
determine if your payoff ratio and win ratio performance warrant a
higher risk than 2 percent.The ART of Trading,A BOOK PUBLISHED
BY JOHN WILEY & SONSIf you are interested in getting more information on the trading system I use,
which isApplied Reality Trading,orART, you can refer to the book that I wrote
titledThe ART©Rof Trading, published by John Wiley & Sons, 2008.
TheARTmethodology is based on trading the “realities” of the market, or
tradingcurrent market dynamics. This approach does not try to predict or fore-
cast the markets. Instead, it is based on looking at the current market realities,
which are based on the data you receive from your data provider.
These realities of price and volume cannot be distorted. They are absolute
in any given moment. By using this information, we can determine entries and
exits based on the realities of current market conditions. We are then not relying
on news, indicators, or opinions.
This book,The ART of Trading,is a thorough manual on technical analysis
and how to use theARTtrading system. Included with the purchase price of
the book is one free month of theART trading software and one free month
of data feed from a major data supplier. Probably the best price for the book
is on Amazon.com, so you can go online to see what the particulars are. If you
have any questions on theARTsystem, feel free to contact me by e-mail via
[email protected].ADAPTING TO CHANGING
ENVIRONMENTS AND CHANGING
MARKET CYCLESJust as most climates have four seasons to one degree or another, the mar-
kets have different environmental cycles. This means you need to quickly
identify the changing cycles and then appropriately adapt to them.
If you live in New York City, for example, chances are you will not
be going outside for a leisurely stroll down Fifth Avenue in shorts and a
tee shirt in the month of February. Why is that? Because, if you’ve lived
there for a while, and experienced the local seasons, you will have already