a trader's money management system - mcdowell 2008

[...]... insurance that you no doubt currently have and understand the need for Consider a change in perspective and see money management as insurance and a cost of doing business It may take on an even greater meaning and value to you AN INSURANCE POLICY FOR TRADERS AND INVESTORS The principles that work for you in day-to-day life can also work in your trading and investing endeavors Putting a money management. .. game another day instead of being completely wiped out Yes, if you are a ected by any of these devastating accidents, illnesses, or account drawdown, there are certainly emotional and financial issues to recover from, but they are set at a stop-loss limit that controls your risk of ruin THE “AMAT” TRADE THAT GOT AWAY Many years ago when I was trading Applied Materials, stock symbol AMAT, I placed a. .. experiencing the financial loss yourself—that is, if you haven’t already learned the expensive way The markets are the ultimate university of finance and sometimes the tuition is on par with Harvard, Columbia, or Yale A PENNY STOCK TRADE THAT WENT BANKRUPT This trade was an interesting trade for me, and again it was many years back My entry was based on buying a penny stock that the analysts and my investment... together a personal system that works for you Although many books on money management can be heavily focused on the mathematical formulas and mathematical theories of risk management, I’m going to try to keep it simple and make the concepts as easy to understand as possible That way you can see the dramatic benefit of these concepts quickly The Resources appendix at the back of this book has a list of... research and engage in numerous practice trades prior to risking any actual money Hypothetical or simulated performance results have certain inherent limitations Unlike an actual performance record, simulated results do not represent actual trading Also, since trades have not actually been executed, results may have under- or overcompensated for the impact, if any, of certain market factors, such as lack... the monetary (and emotional) pain and suffering of these specific trades with AMAT and the penny stock is what gave me the motivation to develop a thorough money management system that has kept me on the right track ever since Those two losses are what enabled me to own the heartfelt belief that risk management was essential to consistent financial success You may have the best system and approach in the... bigger than life, and it is those situations, in addition to the day-to-day unpredictable nature of the market, that sound risk control can help you manage It is all about calculating probabilities and making sure they work for you and not against you It is similar to having an insurance policy—so, yes, your house burned down or got blown away in a hurricane But at least you have insurance money to... the greatest challenges for any trader is to finally come to the point where he or she sincerely believes to the very core of their being that a sound money management program is vital It is a stumbling block for a great many, since most individuals participating in the markets today just don’t believe that money management is particularly important Analyzing the crucial and latest fundamentals, using... JWBK182 -McDowell viii April 25, 2008 15:7 Char Count= 0 FOREWORD with the discipline of proven money management as revealed in A Trader’s Money Management System, you will become a more confident and successful trader As an extra bonus, you will have less stress! S TEVE N ISON President of Candlecharts.com Author of Japanese Candlestick Charting Techniques www.candlecharts.com FM JWBK182 -McDowell April... thanks to my wife Jean McDowell, who has been there by my side templating and editing this material every step of the way Thanks, sweetheart, for all you do—you are much appreciated! A B ENNETT A M C D OWELL San Diego, California March 2008 xi FM JWBK182 -McDowell April 25, 2008 15:7 xii Char Count= 0 FM JWBK182 -McDowell April 25, 2008 15:7 Char Count= 0 Disclaimer he information in this book, A Trader’s . mathematical formulas and mathematical theories of risk manage- ment, I’m going to try to keep it simple and make the concepts as easy to understand as possible. That way you can see the dramatic. JWBK182 -McDowell April 25, 2008 16:39 Printer: Yet to come INTRODUCTION This Is My Money Management System T his book, a Trader’s Money Management System is my personal ap- proach to staying out. combine can- dles with Western technical tools and to always incorporate risk/reward analysis. Equally important is money management that is, proper trade size. For example, what is the proper trade