The class of those who have the ability to think their own thoughts is separated by an unbridgeable gulf from the class of those who cannot.
                                                                                 ….. Ludwig von Mises

Money Management has many names: asset allocation, position sizing, bet size, portfolio heat, portfolio allocation or even risk control. It is terribly important for long term success. It is at the root of all trend following winners.

Q. Why exactly is money management so important?

A. Determining your bet size is key. If you don't know how much to buy or sell (your bets) at all times you are in trouble. If you start with $25,000...is your first trade 1 contract, 2 contracts? What is the number? You must know it.

Q. What do you mean?

A. Most traders believe that money management is simply where you place your stop. A stop alone is one part of a trading system, it's not money management. You can buy any number of trading systems that all tell you they have money management built in, but all they really do is give you a stop. The key question of money management must focus on the "how much" question, not the timing of when you enter or exit. Worry about the optimal amount to trade or how much to buy or sell -- those are the key questions for all traders.

Q. Money management yeah whatever - I want to know about trading system percent accuracy. What is it?

A. You are on the road to the poor house! Percent accuracy is fools gold. System 1 below looks more impressive than System 2 if we use your focus on accuracy. 85% accurate, you can't go wrong right? Wrong:

 

 

 

 

 

 

 

The examples above show how and why the desire to be right kills many traders. They focus on % winning trades and % losing trades instead of proper bet size (money management). System 2 is the better system. It makes more money. System 1 is all about ego (and long term losing). System 2 is all about math.

Incorporating the Fixed Ratio Position Sizing method – as does the Trendway Trading System, means that the money management is built into the spreadsheet and you are told how many contracts to trade based on your equity balance. When you are winning, you trade more contracts. When you are in a drawdown situation, you decrease the number of contracts. All based on your equity balance – not on your % of correct trades. This approach can be used with any successful trading system, and makes the difference between so, so results, and fantastic results.

All this without endangering your starting equity. In other words, this money management approach does not kick in until you are well into the black and showing a good profit. Then, there’s no ceiling to the profits you can make. See the comparable results ( TRENDWAY TRADING SYSTEM) between the conventional trading of 2 contracts per trade, and that of trading according to the fixed ratio approach. Really, no comparison.

You would do well to incorporate this approach in your trading – no matter what systems you are following.

 

GO WITH A WINNER……………….END UP A WINNER

 

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POSITION SIZING FOR FUTURES TRADERS.

Money Management, Bet Sizing, Position Sizing. All Mean The Same Thing.

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