Money Management
of ruin in the very immediate future. In order to safely establish such a setup,
each open position needs to be risk‐freed before a new position may be initiated.
There are four main ways to achieve this state where each position experiences
no directional risk, except for the most current position. We use the stochastic
exit mechanisms or setups to establish risk‐free positions. The term stochastic
means random or arbitrary. Hence, stochastic exits means exits that are random
in nature, with no predefined exit point. The stochastics mechanism has three
main functions:- It frees an open position from directional risk.
- It allows an open position to remain open safely without any predefined exit
and hence able to ride a trend without risk. - It allows for the establishment of numerous open positions for the purposes
of experiencing larger gains without the associated risk of having all positions
exposed to directional risk.
Employing these stochastic exit setups transforms capital risk in trading into
one of opportunity risk. It is more advantageous to trade with opportunity risk
than with capital risk. With capital risk, a trader exposes him - or herself to the
potential loss of capital. But with opportunity risk, a trader exposes him - or her-
self only to the loss of an opportunity to make more profit.
Therefore, we see that most of the trader’s work is actually done before even
entering the market via the setting up of the six passive components of money
management. The remainder of the work is done after entry. Therefore trading be-
gins even before the very first trade is initiated. Real traders do most of the work
before entering the markets. Entries and exits alone are not the most important
part of trading. See Figure 28.5.figure 28.5 Sequence of Determination during the Dynamic Money Management
Stage.