Money Management
Like dieting and working out, money management is something that most traders pay lip service to, but few practice in real life. The reason is simple: just like eating healthy and staying fit, money management can seem like a burdensome, unpleasant activity. It forces traders to constantly monitor their positions and to take necessary losses, and few people like to do that.Boris Schlossberg
Managing Your Money
by Gibbons Burke
For many traders, money management is the ugly stepchild of the trading family. But you can ill afford to neglect this aspect of your trading plan.
It’s surprising that even many active traders and investors have no idea what money management is about. They generally entertain a fuzzy notion that it has to do with setting stops, and that discipline is involved to make sure you execute the stops when they are hit, but their understanding doesn’t go much further. Most people seem content to let their brokers track their trades for them, and the tools provided by the brokerage sites are adequate to the task.
But none of the online broker rating services tell you about brokers who provide the tools to help you manage these risks, and none of the traditional online or even most hyperactive day trading brokerage firms seem to cover this important contributor to trading success.
Fine-Tuning Your Money Management System
by Bennett A. McDowel
When you hear of someone making a huge killing in the market on a relatively small trading account, more likely than not it was a fluke: The trader was not using sound money management techniques. The trader probably exposed his trading account to obscene risk due to an abnormally large trade size. The trader may have just gotten lucky and experienced a profit windfall. Trading like this means it’s just a matter of time before huge losses dwarf the wins, and the trader is devastated emotionally and financially. Money management in trading involves specialized techniques combined with your own judgment. Not adhering to a sound money management program can find you exposed to a deadly risk of ruin, and, worst of all, most probable equity bust. Keeping this in mind, you may find a few essential money management techniques can make a big difference to your bottom line.