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Good Money Management Is The Key

You can give anyone the best tools in the world and if they don’t use them with good money management, they will not make money in the markets….
We’re convinced that a person could make a profit simply by buying and selling the markets according to the dart board if they followed all the right things as far as money management is concerned.

Traders and investors spend all their time in search of the ultimate trading method. They have no clue that the road to stock market riches ultimately lies in sound money management.

Winning Streaks vs. Losing Streaks

All traders who last long enough will go through periods of winning and losing streaks.Mathematicians refer to the process as the theory or run known to gamblers as a “streak.”Games of chance  such as roulette ,craps and blackjack are predicated that the house has an edge over the player.Trading  has  a distinct advantage because the trader has the ability to be the house.A mathematical edge is all that is all that is needed by the trader to increase his probability of success.Sound money management advantage begins to work.What happiness in real time trading is that after a series of losing trades the trader will begin to question the system or his ability to execute the system properly.

Tow things are necessary to get though the bad losing times !Belief in your system is very important but it ranks second to the sound money management system.Mediocre trading systems can have positive results with the use of a good money management system.The rule of thumb is to reduce your risk on any trade to 2% of working capital.This should prevent a meltdown but remember trading is about probability not certainty !

10 Tips for Traders

1. Bulls make a little. Bears make a little. Pigs get slaughtered
In other words, do not be a greedy trader. If you are a bull, don’t expect to get in at the bottom and out at the top. If you are a bear, don’t expect to pick an exact market top and ride a market all the way down to the lowest low. Thinking otherwise allows the destructive “greed” emotion to take over. Greed has been the ruin of many traders.

2. Any fool can get into a market, but it’s the real pros that know when to get out
Indeed, market entry is certainly an important element of successful trading. However, exiting the trade is paramount. Many times a traders will allow a market to “go against” him or her for way too long and way too far–meaning big trading losses. See next item.

3. Use protective buy and sell stops
One of the major mistakes many traders make is not using protective buy and sell stops when they enter a trade. Or, traders may pull their protective stop, “hoping” the market will turn in their favor. Don’t be fooled into using “mental stops.” Determining where to place protective buy and sell stops BEFORE market entry is one of the best money-management tools available. (more…)

Trading Discipline

Trading DisciplineEmotions are probably the biggest obstacle any trader has to overcome. Many traders become losers because they can’t follow a plan. They see a couple of losses, get excited, abandoned the plan and start to take wild shots at the market.

Traders who develop a sound set of trading rules that match their financial situation with their objectives, and then stick with those rules, increase their chances of becoming big winners. Trading discipline can be more important than your trading system.

Discipline means you must become mechanical in making trades when certain price actions occur. You must shut off your emotions, and not accept one trading signal over another. Disciplined traders let profits run and keep losses short by following rigid guidelines. (more…)

What makes a trader consistently profitable?

There are three things:
 
1) Having an edge, which is some methodology for determining with reasonable accuracy the relative probability of the market price hitting your profit target before it hits your stop loss price.  An edge is provided by a set of trading strategies, and a set of rules for when to use which trading strategies (briefly, when to follow a trend, when to fade a trend, and when to stay out.)
 
2) The discipline and emotional fortitude to follow the rules of your trading rules flawlessly.
 
3) Sound risk and money management rules.  
 
Sound money management and risk control are the keys to being a profitable trader. It is not the prediction or the latest and greatest indicator that makes the profit in trading, it is how you apply sound trading discipline with superior cash management and risk control that makes the difference between success and failure.  (more…)

Vigilance

Vigilance is the non-stop guarding and protecting of important things. In trading there is nothing more important than money. The Professional Trader takes his money very seriously and has given it a more serious term: “Capital”. Capital is everything to the winning trader. It is not just the end goal, it is the means and the source before, during and after the trades. The Professional Trader guards his capital very closely because it will allow him to trade today, tomorrow, next week, next month and next year and beyond. If capital is not protected at all times, then the entire effort for the year can be gone and future opportunities are severely limited. Vigilance in trading means holding the protection of your money, your capital as your constant highest priority. Properly protecting your capital includes starting with enough to trade wisely and be able to stay in the game when the inevitable downturns and losing streaks occur. (more…)