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Money Management Articles

Don't put all your eggs in one basket. Diversify. Money management is much more than that. Poor money management can turn a profitable system into losses. Good money management knowledge and skills are crucial to a trader's success, even more important then market knowledge. Also, remember to check out the following sections.



Risk and Reward Print E-mail
Money Management Articles | Written by BKTraderFX |
How do you determine proper risk and reward in trading? I don't think anyone can ever provide a definitive answer to that question because its is akin to asking how many layers do you need to walk outside of my apartment in New York City in the winter. Right now as the thermometer reads a balmy 8 degrees Fahrenheit as I type this at 3 in the morning, you need about four layers just to make it to the coffee shop across the street. But just last week you could have made the same journey in a T shirt without feeling a chill.
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The Single MOST IMPORTANT Aspect of Futures Trading Print E-mail
Money Management Articles | Written by Jim Wyckoff |
Okay, traders: Do you know what is the most important aspect of successful futures trading? Is it identifying the trading opportunity? Is it proper entry into the market? Is it the trading "tools" you are using? Is it an exit strategy that is the most important aspect of trading? The answer is: None of the above (although an exit strategy is close).
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Don't Hold Your Breath Too Long While Under Water Print E-mail
Money Management Articles | Written by Jim Wyckoff |
The headline of this educational feature pertains not to swimming but to trading. Most professional traders do not hold onto their losing positions for very long. Once a trading position goes "under water" most professional traders will immediately begin looking for an exit strategy
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The Why Wall Street Doesn't Know About Position Sizing Print E-mail
Money Management Articles | Written by Dr. Van K Tharp |
This week I'm going to be a little controversial because I'm going to put forth some rather bold statements. First, it is possible with small amounts of money and a reasonable trading system to make outstanding rates of return (50-100% or more) through position sizing. Second, if you have too much money, then you probably cannot achieve these sorts of goals because your activity moves markets. Third, professionals either don't know this, or don't want to know this, because they have other rules to justify their performance.
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The Importance of Position Sizing 2 Print E-mail
Money Management Articles | Written by Dr. Van K Tharp |
You lose whatever you risk when tails comes up and you win twice what you risk when heads comes up. If R stands for you risk, this system is characterized by the two R-multiples it generates: 1) - 1R (when you lose, you lose what you risk and R stands for your risk); and 2) +2R (when you win, you win twice what you risk).
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The Importance of Position Sizing Print E-mail
Money Management Articles | Written by Dr. Van K Tharp |
I did a retreat with one of the world's greatest traders in 1989. At that retreat he talked about a simple trading system. It was a system in which you flipped a coin. If the coin came up heads, you won twice what you bet. If the coin came up tails, you lost what you bet. Now, this is actually a very good trading system. You win 50% of the time and your winnings are twice what you lose. How many of you have a system that is that good?
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Position Sizing Continued Print E-mail
Money Management Articles | Written by Dr. Van K Tharp |
osition sizing is that part of your system that tells you
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Position Sizing Is More Important Than You Think Print E-mail
Money Management Articles | Written by Dr. Van K Tharp |
Before we discuss this topic, let me give you some important background information. I tend to think of trading systems by the distribution of R-multiples that they generate. And the average R (or mean R) of the system's R-multiple distribution is the expectancy of the system. It tells you what to expect from the average trade.
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Every Trading System Can Be Described By the R-multiples It Generates Print E-mail
Money Management Articles | Written by Dr. Van K Tharp |
Last week I talked about determine your initial risk for each trade and how you could express your profit and losses as a ratio of that initial risk. I recommended that you always have a bail-out point before you enter into a trade, but if you haven't done that then you can look at old trading results and use your average loss as an estimate of your initial risk.
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Start Thinking In Terms of Risk-Reward Print E-mail
Money Management Articles | Written by Dr. Van K Tharp |
One of the cardinal rules of good trading is to always have an exit point before you ever enter into a trade. This is your worse case risk for the trade. It's the point at which you would say, "something's wrong with this trade and I need to get out to preserve my capital."
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