A trader\'s money management system

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c08 JWBK182-McDowell April 25, 2008 16:4 Printer: Yet to come

68 A TRADER’S MONEY MANAGEMENT SYSTEM

FIGURE 8.2 Scaling out of a Trend to Lock in Profit After A Quick Hyperbolic

Market Move Up.

Source:eSignal.www.eSignal.com

effectively. In addition to having a large enough trade size, you also need

to keep your trade risk below 2 percent.

IMPORTANT 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 two ways you can increase your trade size while maintaining solid

risk control are as follows:

1.Find a market where you can initiate a large enough trade size with

your current trading account capital while risking no more than 2 per-

cent if this initial position is stopped out. This would mean finding

markets that are less expensive and that therefore enable you to buy

more contracts or shares.