Articles

Home  >  Articles  >  General Articles  >  Implementing Money Management Techniques
Printer Friendly Version

Implementing Money Management Techniques

Page: 1 2 3 4 5
by Bennett McDowell -  Apr 7, 2006
6.9 (from 20 ratings)

There are many variations and themes on how to "scale" out, but this is the basic idea. If you trade only one or two contracts you really can't "scale" out of positions that well. This is another reason why larger trading accounts have an advantage over smaller ones! Also, some markets are more expensive then others, so the cost of the trade will also determine your "trade size." Remember in choosing your market, liquidity is important, and you must have sufficient market liquidity as well to execute "scaling" out of positions in a meaningful way. Poor fills due to poor liquidity can adversely effect our "scaling" out technique.

The psychology behind "scaling" out is to reduce stress by quickly locking in a profit, which should also help you stay in trends longer with the remaining positions.

Here is an example of using multiple money management techniques. In the chart below we adjust stops and "scale" out of the trade in increments as part of our money management program. The initial "trade size" was calculated using a 2% risk based on the trade entry and the initial stop-loss point as indicated on the chart.

(click to enlarge)

Page: 1 2 3 4 5



Comment on this Article

Recent Comments:
Quote: Originally Posted by Silent.Trader Good for the mind is imho not a good reason, it's emotional and consequently sub optimal. I thinks the target should be rational reasoning. Liquidity may be a valid reason for fased entry and exit. For me barely an issue however as I 'm only a small retail trader , mainly active in fairly liquide markets and usually only with limit orders. If scaling in and out really makes a...
s-a   30-03-2007 18:31:44
Quote: Originally Posted by timsk Not necessarily pssonice - assuming your use of the word 'gambling' is pejorative and you don't regard all traders as gamblers. A trader who loses 40% of the time is, by implication, winning 60% of the time. It's entirely possible to have a consistently profitable system with this success rate or even a good deal less. Tim. ...there are enough successful systems, which lose 60%...
zentrader22   25-01-2007 12:22:55
Quote: Originally Posted by pssonice if we are losing 40% of the time (?) then we need to FINISH trading ! losing 40% of the time means gambling. Not necessarily pssonice - assuming your use of the word 'gambling' is pejorative and you don't regard all traders as gamblers. A trader who loses 40% of the time is, by implication, winning 60% of the time. It's entirely possible to have a consistently profitable...
timsk   22-01-2007 15:11:16
if we are losing 40% of the time (?) then we need to FINISH trading ! losing 40% of the time means gambling. the main question is : what r your principals ? I m trading based on H&S and fibonacci No. First Im looking at expected H&S figures second I m preparing my linited entry stop and target it is possible to succeed with these principals
pssonice   22-01-2007 14:09:08
Quote: Originally Posted by damianoakley I think it works both ways. If you catch a strong price trend, your profits are multiplied much more by pyramiding at regular intervals, rather than loading, exiting and reloading. But pyramiding has to be done correctly and accurately. Otherwise, you are just increasing your risk unneccessarily. Thanks Damian My sentiments exactly - what I do is take an...
TheRTTrader   22-01-2007 13:48:40

View the comment thread

Sorry, you are not allowed to add comments. Please login or register first.




Copyright © 2001-2008 Trade2Win Ltd.