Money Management & My Trading Secrets

Tackling every market situation with proven tactics and decisive actions are the first steps in a trading career. Itís time to take the next move. Below I will list a few of the core principles and strategies that have proven steadfast and central to my trading profession. After you have taken them into your own repertoire of trading techniques, I am positive that you will have similar feelings.

Do you believe that the more you trade the more money you will make? On the surface this rings true, however experienced traders will reveal that the best strategy when looking to make serious money is to understand one market inside and out.

When it comes down to it, the best trading system is simply that, simple. After all, how great can a trading system be if it paralyses your decision making and leaves you second guessing? Too many indicators and over optimization are the number one culprits of an over-complicated trading strategy. There are times when an over optimized plan will perform well; such as in historical data. However, it said system performs poorly in real time than it isnít much of a system, is it?

Do you have your stock trading systems documented and penned? If not, then you will only get so far as a trader. Every single long-term successful trader that I have ever met documents their winning trade systems. Take the time to write the entire methodology that led to your success. Why do you need to bother? In order to trade you must have a perception about the market. Commit to that perception by writing down your thoughts and strategies. By taking that perception and claiming it as yours you risk the opposite outcome of being incorrect. There will be no bones about it since it is written in black and white, and that is the point. Hold yourself accountable, and a revived sense of dedication will arise to better your trading system in similar future market conditions.

One of the most helpful ways to add insight when perceiving a market is to back test. Back testing takes historical data and tests would be outcomes against the best strategies of today. Of course results are not 100% accurate since past conditions can never be exactly repeated. However, there are significant insights to gleam. Similar price movements and patterns occur over time. Why not test your trading systems against a historical period similar to todayís market? There is always time to allow for researching for invaluable market data.

Letís face it, trading confidence is invaluable. But how is one to gain this confidence when trading experience is slim? Back testing. Various trading systems help to read the market, but they only add confidence once acted upon. Whether you employ the candle sticks, moving averages, Fibonacci retracements, volatility breakouts or other trading systems is up to you. However, gaining trading confidence is also your job, and with back testing this confidence grows by leaps and bounds compared to those who choose to skip the method.

If I told you that not just most, but almost all traders and investors have deplorable trading money management skills, would you believe me? Unfortunately, it is true. Time and time again, it is said that proper money management is the key to becoming a top trader, and yet, so many fail. If appropriate money management is not innate, learn it.

Can I tell you a secret? I call it a ìsecretî since there is so little correct information available about this subject. And this includes authorís who have written books about the matter! Some circles call it ìdiversification,î other ìrisk control.î It is commonly known as ìwisely investing your money.î Whatever you call  trading money management,î know that its power is not in its name, but in its simple algorithm.

Running a business and trading have key similarities. All successful businesses keep statistics. How many people visited? How many sales and the average dollar amount per sale? Multiple factors are taken account of depending on the needs of the business. In order to improve the business, one must first know where the business stands. Trading is precisely this exact way.

Trading is a business. It may not appear as a traditional brick and mortar, but in order to improve you must keep statistics about your trading system. R multiples, win to loss rations, expectancy and other statistics area must to track. You can guess all day long where to tweak, but until you implement consistent statistic taking your trading will not improve. One solid place to learn about trading statistics is to read Trade your Way to Financial Freedom by Dr. Van Tharp.

At last, you have a back tested, hearty and the best trading systems ready to go. Money management is no longer a worry, as you understand how to properly handle it. You understand the market and are confident in your techniques. You have successfully maximized your trading potential, congratulations! You are about to enjoy hard-earned success that will leave others wondering how you did it.