That darn money management stuff: The holy grail of this game.
I've been playing this trading game for 6 years, with a hiatis for a couple of years when I wiped out my initial capital as a rookiel. I've made and lost tens of thousands as I'm sure many people who participate in this site have.
I often feel I am so close to getting this game down to where I can really be a sucessful trader. I start picking the right entries, follow the markets, make some consistant good trades. Then it seems out of the blue, I don't follow my stops, pray to hope, and freeze up as I lose thousands watching the ticker move against me. It's like being in Vegas where the chips don't feel like money but just peices of wood. The next thing you know, weeks of effort are lost.
If you haven't had the above scenerio happen to you. Rest assurred, it will. You can almost flip a coin insofar as a buy or sale, and if you can be disciplined enough to have good money management, you can make money. As you gain skill and wisdom, you wil improve and make consistant money. Make your money management you number one priority, and hopefully we can be successful in this greatest of all video games.
It's great to have a site where traders can interact. We traders are a small universe, and I hope we can all help each other to take our piece out of the market and achieve the big dream.
Thanks to Wally for starting the site and to all others for their input.
- isafool1's blog
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Money Management is responsible for probably 80% of the success of any trader, if not more. You can take a skilled trader, who always uses money management, and give them a random trade and they can still work it out. Not always to a profit of course, but that is how important money management is.
The other important issue is ascessing the risk ahead of time - meaning I am playing 500 shares of ZZZ corp, with a stop of X and a target of Y. Figure out and ASSUME ahead of time your stop is going to get hit - ignore profit target Y for a second and figure you will be 100% wrong. Is that loss amount acceptable? Is it in line with the level of profits you normally take? If the answer is no, either lower the share size or raise the stop. Another key mistake is putting a stop way too close to the price almost assuring any minor jiggle in the stock will get you stopped out.
Most traders from my experience ignore the stop when its placed too far down because "they cant take a loss like that" or another good one "they always bounce after I get stopped, so I am gonna ride it". Traders have a funny way of justifying not taking a loss - in reality its part of the game. A trade is just that - a trade - either it works or it does not - either way it should not matter. Also realize - if you get stopped and see that its turning or it might be a mistake, you can always go in again WITH A NEW STOP.
Basically if you adhere to solid money management, and apply some trading skill the profits will take care of themselves. It might be an overstatement, but that basically is true.
Mucko