Trading Money Management

Underestimate the importance of trading money management at your peril. Building a trading business you can be proud of without trading money management systems and rules in place is doomed to fail from the outset.

Achieving financial success in the markets is not easy. It takes discipline, determination and a well-tested (and well-followed) plan. Despite what some might say, the skills required to become a successful trader are not inbred. Anyone can learn. And, as trading guru Dr Van Tharp points out, it's more about mindset and psychology that anything else.

The reason psychology is such an important part of becoming a successful trader is that a lot of what you have to overcome is counter intuitive. Cut your losses and let your profits run. It's one of the golden rules of trading. We all know that. But sticking to that rule when you're in the trenches is the hard part; it goes against what many of us see as the 'natural' thing to do. Our inclination is to let our losses run in the hope they will turn around and to cut our profits short in fear of losing them.

But, to win in trading, you have to learn to go against the grain.

The fact is that there are literally hundreds of perfectly good entries and there are just as many ways to make money in the markets; but that's not what makes a good system. At the core of any successful system is the same critical component: excellent trading money management. You need to have a method in place to protect your capital. No system is going to trade with 100 per cent accuracy. All it takes is one bad trade to lose it all and that's why money management is so important.

Next to your psychology, that the most important aspect of trading is money management. That said, to date, I haven't yet found a course that explains this critical aspect of trading as I believe it should be explained.

I don't claim to be the only one to recognise that money management is the Holy Grail when it comes to trading. In fact, many other success stories cite money management in trading as a core principle of their success in the markets. For this reason, I'm not going to attempt to reinvent the wheel here. No matter the market, timeframe or method (long or short), the fact is that trade money management rules need to be applied to all systems regardless of what you're trading. No exceptions.

If you're not currently successful trading the market, or you're not achieving the success that you would like to achieve, the problem will most likely be poor discipline with tradingmoney management. It's one thing to know these rules; it's another to actually apply them.

Everyone is at a different point in their trading journey. No matter where you are remember that all it takes is one new idea, one finer distinction, and you can watch your trading profits soar.
You have to understand what you're doing and why you're doing it. Once you have a good system in place, you won't need to follow market gurus, full-service brokers, tip sheets or anything like that.
You have to confidence of knowing that once you enter into a trade you'll already have your exit strategy predefined, enabling even the busiest person to manage an aggressive portfolio of securities with only five minutes a day. Most importantly, you'll be able to sleep at night because your risks will be tailored to fit your level of risk tolerance and confidence level.

Investing a Business Or Just a Hobby?

You really don't hear about great fortunes being made by investors. Ever wonder why? It's because business done right provides the most leverage, greatest velocity, and least amount of risk of any money-making activity.

Why do some businesses grow and grow while others seem to hit a ceiling which they can't grow?
The answer to this question lies in the foundation of the business. Small businesses stay small when the owner spends his or her time running the business. Effectively, these people own their job.

They have no time to work on the business because they are always working in the business.
The key is how to get the owner out of the business operations and focused on the business growth. The answer is for the business to create a strategy and a set of systems that implement that strategy. Then, and only then, will the business owner have time to grow the business.

When the strategy and systems are in place, the owner only has to manage the systems, not the people. The owner isn't doing the work, the employees and other team members are doing the work.

What does this have to do with investing?

I have discovered that the business principles of strategy and systems can be applied to investing. Investors who create a business of investing, by developing a strategy and implementing systems, can enjoy the same results enjoyed by a successful business owner, i.e., higher profits, more growth, less time spent on investing, total control over their investing and less risk.

Trading Education

When a person decides to invest their money into any kind of financial instrument, there are certain things they need to learn first. Commodities are no different. When it comes to buying or selling commodities, education is power.
There are many ways to educate yourself about commodity trading, including books, seminars, websites and discussion forums. These resources explain what you need to know to get started in this form of trade. Learning about the market can make the activity exciting, successful and profitable, while failing to understand this type of investment can mean losing the amount invested.
Commodity exchange involves short-term, high yield investments and provides investors and speculators with an opportunity to make their money grow very quickly. The most popular items include gold, oil, wheat, soybean, coffee and other raw materials. Their prices are affected by economic forces of supply and demand, market manipulation by government politics, and other factors. Even the general sentiment among investors can affect the price. If the majority of investors believe the price is going up, it will probably do so even if there is no fundamental basis for a price rise.
That is why experienced traders in this particular field know they must watch not just the recent past but also the current trends of the market. This tells them the right time to sell, to hold on to what they have, or to purchase more.
While a successful investment can never be guaranteed, learning as much as possible greatly increases the chance that yours will grow rather than be lost. When you learn how to trade commodities you will gain access to some of the winning strategies used by the top traders in this field.
If you need money now, like I mean in the next hour, try what I did. I am making more money now than in my old business and you can too: read the amazing, true story of Martin Thomas in the link below. When I joined I was skeptical for just ten seconds before I realized what this was. I was smiling from ear to ear and you will too.

Psychological Rules of Trading

If you trade 100 times a year and it costs (on average) a minimum of $45 to enter the futures market on any one trade, you will have to generate $4,500 a year in trading profits (by correctly guessing the direction of the market) just to break even. That's a 45 percent return on a $10,000 futures account! That brings me to Successful Trading Rule #1:

1) Never spend more on trading expense and overhead than your futures account.

A $100,000 futures account opened today will generate about $4,000 in interest (assuming the standard payout rate of 90 percent of today's T-bill interest of around 4.5 percent). If you spend $100 a month on quotes and research, that leaves you $2,800 or about five trades a month (60 x $45) for trading expenses.

Five trades a month from a $100,000 account would drive the average futures broker up a wall in frustration. The system gurus who claim returns of 100-200 percent a year would sneer. But here's why the average investor in futures must follow this rule as closely as possible.

If your total trading expenses (commission, bid/ask, slippage, overhead) are going to exceed your guaranteed interest income, you make it far more likely that you will suffer a drawdown during trading that will exceed 10 percent or even 20 percent of a period's starting equity.

Unless you've experienced the strain of this type of drawdown, you will never understand the enormous temptation to make emotional decisions (by overtrading or withdrawing into a shell) that ruin trading performance.

It's this type of irrational, emotional trading that caused the search for the Holy Grail - a mechanical system, that never suffers emotional lapses. But now that everyone has a personal computer, which can go through umpteen numerical manipulations of the Sacred Six ( High, Low, Open, Close, Volume, and Open Interest), purely mechanical trading is losing its punch.

More and more we are seeing false technical breakouts that never follow through to the downside or upside. There is no fundamental reason behind these price movements, only the hum of thousands of computers making the same dumb decisions at the same time.

If you want a better-than-average return in any investment, you are going to have to do something besides what the average investor is doing. Increasingly, even in stocks, the average investor is looking at momentum indicators (like stochastics) and charts to make his decisions.

If the human brain is in the equation, you must at all costs keep out the emotional factors that ruins trading decisions. One of those factors is large losses, another is the sheer stress that making many trading decisions in a short.

2) Never risk more than 1 percent (trading risk plus commissions) on any one trade.

That means a $5,000 account should only risk $50 a trade, including the cost of commissions. If that means trading only agricultural contracts on the MidAmerica Exchange or options, so be it.
We've talked about the psychological problem of losing more than 10 percent or 20 percent.

But there are two other mathematical reasons to limit your losses to the smallest ratio possible. All trading activity is a struggle to try every investment idea that looks promising in the hopes that one of them will work. The more you lose the less you have to try another trade, another trading method, another investment vehicle.

To illustrate this, we will bring Trader Tom and Humble Harry.
Likely Page Break Trader Tom and Humble Harry both start with $100,000. Both lose five trades in a row. Harry keeps his losses to 1 percent of equity, he ends up with $95,100. Tom risks $5,000 a trade and goes down to $75,000.

To get to $150,000, Tom must make 100 percent. To get to $150,000, Harry only has to make 57 percent. Tom must outperform Harry by 75 percent to get to the same goal! Harry is long one contract of coffee before the late June freeze because the moving averages turned bullish a long time ago.

Tom is long two contracts because his system takes big risks. Harry makes $15,000 and Tom makes $30,000 over one weekend. Harry is still ahead by $5,000 despite the ulcer-producing risks.

3) No matter how intellectually stimulating or exciting to trade, any trading method that, after expenses, couldn't beat a simple 18-day moving average system over the same period has to be dropped.

Charles LeBeau (who used to edit the Technical Trader Bulletin, California) once made a statement some thing like this at a seminar he spoke at: "I've tested hundreds of moving averages and I found an 18-day moving average is as good as any of them in tracking the futures markets."

Intrigued, I called him later on and he confirmed that it didn't matter too much whether you used a weighted, exponential, or simple moving average or whether you used four days, five days, or any specific number of days for the crossover average.

In stocks, the total return (capital appreciation and dividends) of the S&P 500 is the benchmark for advisers and any stock system. Anyone or anything that can't outperform the total return of the S&P 500 isn't worth following. I propose an 18-day moving average standard for the futures industry.

Add up the last 18 days of trading in a specific future. Divide by 18. When that specific future closes above the 18-day moving average, buy the next opening. When it closes below the 18-day moving average, sell the next opening.

Thirty days before first delivery date, start collecting closes of the next viable futures contract. When you've collected 18 days of data, switch over to the new month.

Make Money Day Trading

One of the fastest growing and exhilarating methods to earn extra cash today is day trading. Some people use day trading to add on to their standard income stream, while others treat it as a full time occupation. Several people earning remarkable cash with day trading which is why numerous people are tempted to try it out.
Obviously you you won't be able to just jump in and make sizable cash without knowing what you're doing! Day trading does carry risks, but knowing how to deal with these risks and make smart choices will give you the greatest opportunity at increasing your earnings, and minimizing any losses.
Naturally, purchasing stocks at a low price and unloading when the cost is high is the way to make cash in the stock market. Naturally, the big question is - how can you know when to buy stock and sell?
Employ these important day trading secrets to maximize your money-making potential.
Know the market news and stay informed about the markets. You don't have to take hours doing this, however you should have a couple of key sites you keep up with and it's a good idea to monitor a few organizations closely. You want to gain a good overview of what's going on in the stock market.
Don't waste time on shares with small volatility. With day trading day trading, money is gained by buying and unloading stocks that are frequently changing in price. As its name suggests, day trading involves moving financial instruments throughout the course of a day. You just don't have time to stick around and find out what happens while other profitable trades are passing you by.
Increase your math skills. You'll need to be able to analyze trending and financial data quickly. There's no need to be a master mathematician, but you need to understand what the financial data mean so that you can make fast, sound assessments.
Develop plenty of guts. You should keep your emotions level to not let them to alter your assessments. you must hold a clear mind at all points.

Forex Trading

A lot of people have a difficult time choosing the forex software that's right for them. Discovering the perfect forex trading software almost always takes time as well as a ton of research. It's extremely important that you take the time to find the perfect software for you. If you want to make any profit, this is a necessity.
A fair amount of traders start off in forex trading because it's the easiest way to make money. It is much simpler to make a profit than in conventional investing with stocks and shares, where you need to deal with daily uncertainty. However, there's so many different forex software out there that finding the best one seems like an impossible task (although it's actually quite simple).
When you're choosing forex trading software there's one thing that you must keep in mind. Do not fall for over hyped sales letters and tricks. Instead do research and rely on real facts. This is the most important aspect of finding the best forex software to become a successful trader.
For every different forex software you find, you must do a fair amount of research. Also some software allows you to start with a trial period with their forex trading software. These trials can range from free to less than $5 and allow you to try out the software before you seriously purchase it. Something else which is useful is a money back guarantee. This should make you more confident in your purchase as you can always return the product.

Trading

In this modern world, online investing for beginners is now possible. Anyone can actually purchase and sell stocks via the internet. It is a fact that most traders enjoy looking on their online accounts whenever and wherever they want, while brokers like the idea of receiving orders online, more than taking them on the phone.
If you are someone who has scant knowledge about investments, you can now enjoy online investing for beginners. The opportunities to investing over the internet are just numerous. Brokerage firms and companies offer trading online to old time as well as new clients.
Online investing for beginners will certainly interest you as one significant benefit of trading over the net is that the commissions as well as trading fees are much lower. Certainly this is a big advantage to anyone who wishes to make a good start on online trading.
While online investing for beginners can be very inviting, there are actually a few drawbacks. For one thing, you need to have a personal communication with your broker if you are new as this can be very beneficial especially in the aspect of learning more about the trade. This only means that online trading can be difficult for someone who is not net a savvy in the stock market. In order to minimize any problem or difficulty that one might experience when engage in online trading, it is best to gather and learn as much information on stock trading as possible.
Online investing for beginners can become more effective, profitable and much easier if you involve yourself with an online broker who has adequate experience in the field for a good number of years. He can serve as your professional adviser and guide in your goal of making it good in online trading.
Final word, online investing for beginners is a profitable endeavor. However, it is not for everyone to join. Think first and discern if this type of investment is for you and once you decide that it is, be fully prepared and equipped with the knowledge on the field.