Search This Blog

Friday, November 9, 2007

The Most Important Key for any Investor or Trader

What is that? Is it using a stop loss order? Is it risk reward ratios? Is it analyzing your system? Your accuracy rate?

Nope.

Using sound money management principles and strategies, which encompasses much of the above. Money management principles means using stop loss orders, risk reward ratios, or analyzing your system. But it also means much more. Anyone who follows my posts understands that I will rail on and on about this topic more than any other. Because without it, I feel a trader or investor is bound to lose.

Money management means your overall plan. Your overall strategy for dealing with losses, and maximizing gains. It's no good to tell a new trader "Cut your losses short, and ride your winners" unless they understand how to cut their losses short, and ride their winners.

People will hear the words "Money management" and think "Oh, you mean how much to risk?" or "Only risk 2% of your account size" or, "Oh, you mean my stop / loss" order?

The truth is, those are all very small parts of what comprises Money Management. Proper Money management involves analyzing risk. But it should also look for growth. For your money, making you money. Money management is about managing your trades. But managing your individual trade, does not comprise all there is to know about money management.

I would say that Money Management is made up of:

Risk Analysis

Reward Analysis

Trade Management

Drawdown

Accuracy Rate

Performance Analysis

Over the course of the next several days, I will be discussing these topics at length, so a new trader or investor can understand how to implement money management principles.

Search Investing and Trading Articles and Products