Opening Position
August 2007
Your personality is unique. That is what makes you stand out amid everybody else. And it's because of this that there is never a right or a wrong way to trade. What may seem logical or sensible to you may seem completely irrational to another trader. What you fear may be something that somebody else embraces. But whatever your personality may be, in order to be a successful trader you must accept responsibility for your actions. After all, markets are unpredictable. There are several unknown variables, such as who is buying or selling, how many are buying or selling, or how many are waiting to buy or sell. These are all variables you are never going to know, which is why the markets will never be completely predictable. So if you have decided to commit yourself to being a trader, keep in mind that you are playing against random factors. There's no point in trying to chase after that Holy Grail in trading, because it simply doesn't exist.
Mark Douglas, the author of Trading The Zone and The Disciplined Trader, states that in order to be consistently profitable a trader needs to predefine risk, cut losses, and have a systematic way to take profits. These are the reasons why money management is such an important part of your trading. It's the part of trading that you actually have control of. Before placing a trade you need to determine how much money you're willing to put into a trade, how much of that you are willing to lose, and at what point you can take your profits. Your choices will be different from those of other traders and if you choose them wisely it'll give you the edge you need to succeed in your trading.
IN this issue of Technical Analysis of STOCKS & COMMODITIES, we focus on the topic of money management. We have included articles such as "Building A Trading Template" by Giorgos Siligardos, which is a unique look at creating a trading system that combines trade management and money management. You may have heard the term "money management" before, but "trade management"? Check out the article, which starts on page 18. We have also included an article by Christian Smart titled "Fixing The Flaws In Fixed-Fractional Position Sizing." This addresses how much of your money you should place in a trade. Both these articles will make you look at money management from a different perspective.
Given that you are playing with uncertainty, your objective should be to preserve your capital. And in order to do that, you have to keep going back to Douglas's three foundations: Predefine risk, cut your losses, and have a systematic way to take profits. Only then will you be able to accept responsibility for your gains and your losses.
Jayanthi Gopalakrishnan,
Editor
Originally published in the August 2007 issue of Technical Analysis
of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright
2007, Technical Analysis, Inc.
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