The most important factor in successful trading

[TradingPicks]

The most important factor in successful trading

The most important factor in successful trading is money
management. One still has to be savvy at chart forecasting and-or
fundamental analysis, but it's the money management factor that
will make or break a trader.

Over the years, I have listened to the best traders in the
business talk about what makes them succeed in this challenging
arena, and nearly every one emphasizes the importance of sound
money management.

Surviving in the market absolutely requires practicing sound money
management. Even a rookie trader who starts out with a hot hand
will eventually find that at least some trades are not going to go
his way. And if he has not employed good money management
principles on those losing trades, he will likely have squandered
his trading profits and his entire trading account.

Conversely, the novice trader who uses good, conservative money
management techniques will be able to withstand some losses and be
able to trade another day. The ability to take a loss and trade
another day is the key to survival--and ultimate success-- in the
futures trading arena.

Here's an important point to consider, regarding money management
and successful futures trading: Most successful futures traders
will tell you that during the span of a year they have more losing
trades than winning trades. Then why are they successful? Because
of good money management. Successful traders set tight stops to
get out of losing positions quickly; and they let the winners ride
out the trend. On the balance sheet, a few big winning trades will
more than offset the more numerous small losers. Good money
management allows for that to happen.

Here are just a few very general money-management guidelines:

-- For smaller-capitalized traders, don't commit more than one-
third of your trading capital to one trade. For medium- and
larger- capitalized traders, you should not commit more than 10%
of your capital to one trade. The guideline here is, the larger
your trading account, the smaller your commitment should be to one
trade.

-- Use tight protective stops in all your trades. Cut your losses
short and let the winners ride the trend.

-- Never, never, never add to a losing position.

-- Your risk-reward ratio should be at least three to one. In
other words, if your risk of loss is Rs. 1,000, your profit potential
should be at least Rs. 3,000.

I can't stress enough that survival in the trading arena
(especially for beginners) should be your top priority.
And this can only be done with proper money management principles.

 

[hmp]

Re:can somebody explain

recently i ve gone through ryan jones e book on money management. can anybody explain how to apply his fixed ratio method to our indian stocks. suppose i dont want to trade in futures and options and i simply want to buy and sell in market by taking delivery for short terms?
traderji i request u to throw some light on this topic.

thanks and with regards

hmpatil

 

[TradingPicks]

Re: can somebody explain

recently i ve gone through ryan jones e book on money management. can anybody explain how to apply his fixed ratio method to our indian stocks.
thanks and with regards

hmpatil

If you could explain what this fixed ratio method (is it % retracement or % of move) is maybe I can help you!

 

[Gurmeet]

Good Post !!! Wisdom !!!

Cheers
Gurmeet

 

[CreditViolet]

Money management is getting a lot of attention these days but if u dont have a good strategy to enter and exit it will help only to lose slowly.A solid technique is required before applying money management parameters to it

 

[arun]

Money management is the ONLY SINGLE reason why I am still in the markets. If it was not for MONEY MANAGEMENT I would have been wiped out!

I can now sleep like a baby at night! All thanks to traderedgeindia.com

 

[Saint]

Nice article.......Agree with creditviolet as well.Perfect entry strategy followed by a neat risk/money management is everything.Position sizing is another very important thing that we as traders must adhere to at all times.We tend to bet the farm when we are overly bullish......a huge mistake!!Everyone must have a percentage risk per trade in their trading plan.....and follow it religiously.

 

[hmp]

can any experienced trader suggest from his long experience what is the solid strategy for trading which is atleast 60% successfull?

 

[Traderji]

can any experienced trader suggest from his long experience what is the solid strategy for trading which is atleast 60% successfull?

The first element of any trading plan is the amount of capital you intend to invest. This is up to you, but you should understand that there is a direct relationship between the amount of capital you commit and your probability of success. The more you invest, the greater is the likelihood that you will make money.

An important thing to keep in mind when deciding how much to commit initially to trading is that the amount you invest must be "risk capital." Risk capital is defined as money you can afford to lose without affecting your standard of living. It should also be money that you feel comfortable risking. Think of your trading account as an investment in a business. Many businesses fail. That's life. Make sure you won't be so afraid of losing money that it will affect your ability to make correct trading decisions.

The next part of your trading plan involves how you will make your actual buying and selling decisions. Under what conditions will you enter trades? When will you exit your trades? What markets will you trade?

There are four cardinal principles which should be part of every trading strategy.

They are:

1) Trade with the trend,

2) Cut losses short,

3) Let profits run,

4) Manage risk.

You should make sure your strategy includes each of these requirements for success.

 

[arun]

The first element of any trading plan is the amount of capital you intend to invest. This is up to you, but you should understand that there is a direct relationship between the amount of capital you commit and your probability of success. The more you invest, the greater is the likelihood that you will make money.

An important thing to keep in mind when deciding how much to commit initially to trading is that the amount you invest must be "risk capital." Risk capital is defined as money you can afford to lose without affecting your standard of living. It should also be money that you feel comfortable risking. Think of your trading account as an investment in a business. Many businesses fail. That's life. Make sure you won't be so afraid of losing money that it will affect your ability to make correct trading decisions.

The next part of your trading plan involves how you will make your actual buying and selling decisions. Under what conditions will you enter trades? When will you exit your trades? What markets will you trade?

There are four cardinal principles which should be part of every trading strategy.

They are:

1) Trade with the trend,

2) Cut losses short,

3) Let profits run,

4) Manage risk.

You should make sure your strategy includes each of these requirements for success.

How much you are correct traderji. One of the best posts in this forum for anybody venturing into trading. You have summed it very well here. I wish I had a forum like this when I ventured into trading a few years ago, I would have saved a lot of money and heartburn! Anyway sometimes we all learn from our experience and thanks to tradersedgeindia.com I am wiser and richer today.

Also I just renewed my subscription with tradersedgeindia.com and got a very good deal for a yearly renewal (special offer on their 5th anniversary). Just thought that would let you all know if you are renewing your subscription for a year. This is not available on their website so you may have to contact them directly.