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Old 02-16-2008, 10:10 PM
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Black Knight Black Knight is offline
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Join Date: May 2007
Location: Munich, Germany
Posts: 21
Lightbulb Money Management 101

Hi there,

Your mistake is actually a rather common one among beginners... it is easy to get caught up in euphoria after a string of wins, only to do something really silly and give it all back to the house. That's called "greed"... and greed & fear are what rule the markets.

You should enter a new trade because there is a reason to, and not because you just exited another and are "looking to trade something". The good trades will jump right off the chart right at you. If you're squinting, it's probably not that good of a trade. And, why would you be in 3 different positions all on the same side at any rate? That's over-doing it.

Try this...

For any given position, assuming worst-case and your stop gets hit, you should lose no more than 2% of your account equity. That's usually much less than most beginners are used to trading with, but it is sound money management (some systems even call 2% "aggressive", and instead suggest 1% or even 0.5% for starters). It is the slow, but steady way to profits. Those seeking "excitement" are better off in Vegas, at least there you get free drinks while you lose your money.

With this simple system, if you need to use more lots, you can use a tighter stop. If your strategy or timeframe requires a wider stop, then you need to use less lots. The formula is adaptive and scalable. You should also never have more than 6% of your account equity exposed as a sum of all your open positions. So, basically, if the stop on one of your positions gets moved beyond BE (break even), then you get to open up a 4th position. But if you're in 3 losing positions, you'd be forced to cut back your losses.

Good trading,

Black Knight

Last edited by PipDiddy; 02-16-2008 at 11:06 PM. Reason: Link Violation
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