Money Management

"Almost any system could make money
if it is traded the right way."

Yes, any system that has a positive expectation could make money.

It is not difficult to find systems that demonstrate a positive expectation or to create them yourself for that matter.

So, where is the difficulty between this point and making good profits?

To make good profits you have to trade your system to its best potential.

You begin by stating or re-stating what return you require and what level of risk you are prepared to tolerate.

Then, you must start learning the capabilities of your system by conducting a thorough evaluation of the rules it uses to enter and exit the market. In doing this, you apply methods for fixing the system parameters and the protective stop you will use.

After more necessary tests to complete your evaluation, you will be able to see if your system is capable of meeting your trading goals.

If it can't come up to scratch, you will reject it and look at other
possibilities. But if it produces satisfactory results, you are likely to find there is scope for adjusting the return/risk ratio in your favor.

At this point, it will be up to you to decide whether to put further emphasis on a higher return or if you will move more towards a lower risk strategy.

Throughout the evaluation process you will be applying expert trade management techniques, making use of information gained in previous steps.

Entry and exit rules are usually given all the credit for good results obtained by successful traders but this is not a true reflection of merit.

In fact the risk and money management elements of the professional trader's system generally have a much greater effect on final results than the rules themselves.

This is another way of saying that the expertise contained in his methods and software are the biggest factors contributing to the trader's success.

Almost any system could make money if it is traded the right way - and that means if the overall trade management techniques are good.

 

Modus Trading
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Copyright David Bromley 2006
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