Trading Expert Discovers Ways To Beat Stock Market Odds With
Money Management
The first point to mastering money management is that you have
to understand when you're trading on the stock market is that
you are playing the odds - but unlike many forms of gambling,
you can make money. The key to making this money is to respect
the risk that is part of the market, and manage it. Money
management is a set of rules and guidelines that enables you to
turn a profit. By being triumphant with your money management
skills, you can keep your risk at a level at which you're
comfortable with, keep from making poor trading decisions, and
ensure you don't loose your trading capital. This is why it is
so important to follow money management rules.
Why do these money management rules work? You know, it's funny.
I once thought I had a fool-proof way of making money on
roulette. You see, I'd bet on red and black. I'd sit at the
table. After the ball had landed on black or red five times in a
row, I would start betting on the opposite color.
Let's say I had five reds in a row. I would then start to bet on
black. If I was wrong, I would go ahead and double down, so that
if I started my bet at one dollar, the next time I would be able
to bet two dollars, then four dollars, then eight, then 16. With
this system, eventually I'd win and I'd come out one dollar
ahead.
So, here I am at 23 and I've set up my computer program to test
my theory. I made a ridiculous amount of money in the program. I
really thought I had the Holy Grail here. But, if it's so easy
for an 23 year old to figure it out, why aren't all the casinos
out of business and why aren't we're all millionaires?
Unfortunately, roulette doesn't work this way.
You see, if we're flipping a coin, heads has a 50 percent chance
of turning up on each flip of the coin and so does tails. But,
each flip is independent of the last. The last coin toss has
nothing to do with the one before it, each flip is a random
event. This means it's possible to get a hundred heads in a row
if you do it long enough, and believe it or not, that's what
happened to me. When I first played roulette in a casino, I saw
a string of 23 blacks in a row. I went home defeated.
Trading is the same. A percentage of your trades will not work
out. A certain percentage will not go in your favoured
direction, and the next trade has nothing to do with the last
one. Even if you have the world's most accurate method, over
time you will go broke if you don't practice good money
management. Money management rules include defining your trading
float, setting your maximum loss, calculating your stop loss,
and most importantly learning how to choose your position size.
Once these rules are in place, it's important to stay with them.
They will keep you from making snap decisions, and playing the
odds longer than you should. This is why money management rules
are a critical part of any effective trading system.
Discover BIG profits from the market by downloading your FREE
copy of David's new Ultimate Stock Trading Systems course. http:/
/www.ultimate-trading-systems.com/stocks.html