Money Management

Below is a passage from Dr. Alexander Elders book “Come Into My Trading Room”:

“successful trading requires 3 M’s — Mind, Method, and Money.  Mind means developing psychological rules that will keep you calm amidst the noise of the markets. Method is a system of analyzing prices and developing a decision-making tree. Money refers to money management, which means risking only a small part of your trading capital on any trade; think of the way a submarine is divided into many compartments so that it won’t sink if one section becomes flooded—you have to structure your account this way. Psychology, trading tactics, money management—you can learn these skills.”

As you can see there is a lot more to trading than just picking a good stock that you expect to go up.  Money management was the single most powerful tool that I learned, it really is the key to long term sustainable profits.  Trading is a marathon, not a sprint, so we take what the market gives us and by way of letting our winners run, but cutting our losses quick.  Our losses are managed by never taking a hit of more than 2% on our capital.

If your trading and you’re not sure what money management really entails, go to youtube right now and type in money management and learn all you can, it’s that important.

May today be a profitable day…for all of us.

John