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Money Management Articles |
Written by Jim Wyckoff |
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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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Money Management Articles |
Written by Jim Wyckoff |
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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-if they do not already have one in place (and most do) via protective stops. |
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Money Management Articles |
Written by Dr. Van K Tharp |
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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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Money Management Articles |
Written by Dr. Van K Tharp |
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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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Money Management Articles |
Written by Dr. Van K Tharp |
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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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Money Management Articles |
Written by Dr. Van K Tharp |
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osition sizing is that part of your system that tells you “how much” throughout the course of the trade. And, assuming you have a positive expectancy system, that variable, along with your personal psychology, controls about 90% of the variability of your performance in trading. THAT'S HOW IMPORTANT IT IS. And yet most people totally neglect this variable. Mutual funds, for example, that have to be 95% invested at all times, don't really give it much thought. |
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Money Management Articles |
Written by Dr. Van K Tharp |
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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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Money Management Articles |
Written by Dr. Van K Tharp |
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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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Money Management Articles |
Written by Dr. Van K Tharp |
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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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Money Management Articles |
Written by Robert W. Colby |
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Reserves are funds in our account that are held back from trading, and usually parked safely on the sidelines in risk-less money-market instruments. The effect of holding reserves is to reduce net leverage. A workable rule of thumb that has evolved over time out of the real-world trading arena is to limit net leverage to 30%. |
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Money Management Articles |
Written by Robert W. Colby |
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Pyramiding is adding to positions as price moves in the desired trend direction. Pyramiding is a highly aggressive trading strategy suitable only for full-time professional traders who know how to control risks and have the discipline to execute a tested plan consistently. Pyramiding should be executed only according a predetermined and tested method which includes an effective stop loss. |
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Money Management Articles |
Written by Jim Wyckoff |
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There is no absolutely perfect money-management tool in futures trading, although purchasing options on futures does limit your risk of loss to the amount paid for the option. Purchasing options does have its disadvantages, however, and I won't go into that in this feature. What I will focus upon in this educational feature is the placement of protective stops (a sell stop if you are going long and a buy stop if you are going short) in futures trading. Protective stops are not a perfect money-management tool, but they are very effective in helping to solve one of the most important elements of futures trading: When to exit a position. |
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Money Management Articles |
Written by Jim Wyckoff |
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A frequent question I get from less-experienced traders is: "Should I add futures contracts to my existing market position?" That's a broad question and there is no single right answer. So, let's break down the question into some scenarios. |
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Money Management Articles |
Written by Robert Colby |
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1. Always Preserve Capital. Traders should limit loss to 1% of total capital for any one position. 2. Always trade in the direction of the larger trends, with the most emphasis on the Primary Tide that lasts many months or years. In a Bull Market, look only for opportunities to enter long and close long. In a Bear Market, look only for opportunities to enter short and close short. |
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Money Management Articles |
Written by Joe Ross |
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There are some common mistakes I’ve seen traders make in the area of money management. First, let’s understand what money management is all about. Money management overlaps with risk, trade, business, and personal management, yet it has many aspects that make it unique, distinctly different from all of the other areas of management. In this chapter we want to examine some areas of money management that seem to involve mental quirks leading to costly mistakes. |
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Money Management Articles |
Written by Chuck LeBeau |
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We get a lot of questions about various complex money management (MM) formulas and our preferences. We don't comment on this subject very often because money management is such a personal issue that it would be impossible to give any universal advice that would be specific enough to have value. Everyone seems to have different goals and tolerances for risk, not to mention varying amounts of capital for trading. |
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Money Management Articles |
Written by FX Master |
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Money management is a critical point that shows difference between winners and losers. It was proved that if 100 traders start trading using a system with 60% winning odds, only 5 traders will be in profit at the end of the year. In spite of the 60% winning odds 95% of traders will lose because of their poor money management. Money management is the most significant part of any trading system. Most of traders don't understand how important it is. |
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