Articles

Implementing sound money management encompasses many techniques and skills intertwined by the trader's judgment. All three of these ingredients must be in place before the trader is said to be using a money management program along with their trading. Failure to implement a good money management program will leave the trader subject to the deadly "risk-of-ruin" exposure leading eventually to a probable equity bust. Whenever I hear of a trade making a huge killing in the market on a relatively small or average trading account, I know the trader was most likely not implementing sound money management. In cases such as this, the trader more than likely exposed themselves to obscene risk because of an abnormally high "Trade Size." In this...

I get more questions about stop losses than about any other subject. Clearly this strategy causes traders a lot of pain and confusion. Some of it stems from the schizoid nature of our modern markets. But most of it reflects an underlying weakness in trade management skills. What takes place at the end of a trade usually reflects decisions made at the beginning. In other words, the best entries usually lead to the most profitable exits. This is the most urgent wisdom I can give when it comes to stop-loss placement. We can spend hours deciding whether a stock is a good buy or a good sell, but this emphasis is often misplaced. Over time, carefully chosen exits are more important than great entries. You don't believe me? Just ask all...

With everything said and written on the subject of stops, it should be given that everyone is conditioned to keep them religiously even before they start trading. No matter what source a newer trader turns to, utter importance of stops will be underlined and emphasized up to the degree that keeping them is heralded as the ultimate key to success. We all heard adages like “Take care of your losses, profits will take care of themselves”. Do all the stern warnings work? Not really. Time and again traders blow their stops, widen them in a course of a trade, hold losing position in false hope it will make them whole. If this destructive behavior continues despite all the warnings, there must be deeply rooted reasons for this. As with most...

We can spend hours searching for the perfect pattern but fail miserably when its time to turn opportunity into profit. As it turns out, most traders do a poor job managing positions, regardless of experience level. I've received hundreds of questions about this subject over the years and have complied them into a Q&A to help you make the right choices during the trading day. Q - What time-frame charts do you use in real-time? A - I track daily, hourly, and 15-minute charts for all my setups and positions. I don't look any other time frames, except for an occasional glance at the weekly charts. This arrangement doesn't change with liquidity, sector or any other variable. I watch these charts simultaneously on three screens, so I don't...

There are some common mistakes I've seen traders make in the area of money management. First, let's understand what money management is all about. Money management overlaps with risk, trade, business, and personal management, yet it has many aspects that make it unique, distinctly different from all of the other areas of management. In this article we want to examine some areas of money management that seem to involve mental quirks leading to costly mistakes. Listening to Opinion Kim has entered a short position in crude oil after carefully studying as many factors as she could reasonably include while making her decision to trade. She has entered the trade because her study of the underlying fundamentals has her convinced that...

In order to succeed as a professional trader, it is often said that the aspirant must treat trading "like a business". As with many of the clichéd phrases that litter the metaphorical trading floor, the importance of this statement is often overlooked, or the meaning misunderstood. The following article by Tim Wilcox aims to address these problems by examining some of the ways in which a trader might go about achieving this vital goal. It is divided into two sections: a general overview of what constitutes a trading plan and why it is prudent to have one, followed by a detailed analysis of the various aspects that should be considered during its creation, for example, the importance of self-awareness, discipline and risk management...

In the first part of this article, which can be read here, we looked at choosing an instrument and timeframe to trade, as well as establishing the set-up and entry rules. In the second and final part we will consider how to establish exit rules as well as various filters and money management rules to maximise the profitability of the system. 6. Stop Loss Rules. Our strategy already has a natural stop loss in the stop order that does not get filled. The objective of the strategy is to capitalise on those days where the high or low for the day is in place early (9.30-11.45am). If we enter a trade on a breakout of either the high or the low and then the market subsequently hits the other stop we know that our trade is invalid. We know...

The Basics of Trading I've had a long running thread on the T2W boards giving an introduction to the central themes of trading. This series of articles has been adapted from that thread and will take you through all the areas you need to get a start in trading, from chart reading to defining a strategy. In Part 1 I will look at: Basic chart reading Money management Exiting a losing trade Setting a price target Part 2 will then consider: The importance of discipline Paper trading The trading plan And finally, in Part 3, I will bring it all together by taking you through a simple trading strategy. Basic Chart Reading Ok let's start with the basics of chart reading and deal with Support, Resistance and Trendlines. This...