Importance of Money Management

Discussion in 'Technical Analysis' started by shamim, Jul 19, 2006.

  1. shamim

    shamim Member

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    Money management is theee most important and also the most neglected (particularly by new traders)aspect of trading.
    Last Friday, I was in a trading room and the moderator conducted this live experiment using live data (not using real money though). He flipped a coin. If it came up head, he would go long and tail would be short. He was always in the market. He would use a 10 tick stop loss and take 20 tick profit, whichever came first. He did this between the hours of 8:30 - 12 P.M. At the end of the period he had made $270.00 after commissions, even though at one time he had 7 consecutive losers and his winning percentage was only 37%.
    Now don't go out and use this method of trading, it is not a method. He was trying to stress the importance of using strict stop loss and not making hasty exits. If you stay disciplined, you could make decent money even with a low percentage of winners.
     
  2. shamim

    shamim Member

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    Update :
    This morning i.e. July 21,2006, they did the same exercise between 8:30 - 12 P.M. and here are the results.
    Total Trades: 41
    Winners: 16
    Losers: 16
    Breakeven : 9
    Bottom Line: + $ 1493.20 after commissions

    I forgot to mention one important rule. If the trade goes 10 ticks in favor, put the stop loss at break even+1 tick.

    Happy trading
     
  3. sudoku1

    sudoku1 Well-Known Member

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