What exactly is Money Management in Trading?

[Tadragh1]

My definition of Money Management is rather simple and precise. I use this term when - before opening a position - I think about:
- the maximum share of my whole trading capital to risk at the market,
- the differentiation of position sizes between trades.

It is different from Position Management - which takes place when the position is already open. Here I would include:
- exit rules,
- Increasing or decreasing the size of the position.

The remaining component of a trading system would be the entry rule, which comes before MM and PM.

 

[timsk]

Tim,
I know that you have read the comments from Grey1 concerning this view and had exchanges with him about this subject. I am a firm believer in the approach he adopts with regard to this and although you may have a different view, all I can say is that this approach works well. As such I am unlikely to be persuaded by the view that you can have a small stoploss for massive gains in profit. I am also a seasoned Nasdaq stock trader and so I do have a good understanding of how these stocks move and the necessary risk reward strategies that work. I am curious to know if you have actually traded Nasdaq stocks and if so how have you found it ?
Paul

Hi Paul,
I understand and accept fully that you're a seasoned Nasdaq stock trader which is precisely why I am interested in your views and responded to your post! I would also accept the general principle that the wider the stoploss the larger the anticipated gains and, importantly, visa versa. Just to be clear, I am not promulgating the view that 'massive gains' can be achieved utilising a small stoploss. That said, the obvious question here is how big is massive and how small is small. Given your understanding of how Nasdaq stocks move, perhaps you'd be kind enough to offer an example of one of your trades showing your entry, stoploss and exit. Any additional comments as to how they relate to your risk and money management rules would be great.

As for my own experience, I've not day traded actively since my blow-up several years ago. This is because I'm not home in time to trade the evening session, as opposed to a lack of desire (and dare I say ability) on my part. However, when I was actively trading, I used a very crude mechanical stoploss of 20 cents - an approach I wouldn't employ now. I hope - and expect - to be day trading again by this Autumn / winter, so any practical examples and tips that you feel able to provide based on your experience would be most welcome.

Tim.

 

[daytradingworks]

long, medium and short term. volatility

i know of some of the worlds worst traders, normally working for banks, bigger houses, or brokers who earn a fortune. i know some brilliant traders working for smaller houses who earn less than back office staff at banks,,,,to do with order flow, backing off and generally bigger names attract bigger money.

application of risk to trading depends of a variety of things. i day trade. maybe 20/30 times per day. the discipline of applying risk and managing that risk to my trades, which can last for sometimes 60 secs, is alot more crucial than when i managed trades for longer periods.

long term traders use less of there capital to trade than short term traders.