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A QUESTION ABOUT TRADE SIZING
Some questions have been raised by some traders, regarding the necessity of combining a trading system with a money management system. I think they do not quite understand exactly what a money management system really is and how it is associated with the trading system. Predicting price action is addressed with vigor while the area of money management is woefully disregarded.
Your trading system is a compilation of rules that govern exactly where and when you enter and exit a trade. On the other hand, the money management system is a compilation of rules governing when and by how much you can increase or decrease the number of contracts you are trading. This has nothing to do with determining where and when you enter or exit trades. It is completely dependant on the progression of your equity balance. Make more money, increase the number of contracts per trade. Two separate entities aiming for the same result – making more money.
One of the key elements of money management is “trade size”, or what is known as position sizing or bet sizing or betting strategy. No matter what it’s called, it’s the process of determining how much to trade, and has nothing to do with when and where you trade, or what market you are trading, or what kind of trading system you are using or whether you are following a trending or counter-trending approach. Position sizing can be used to increase returns, reduce risk, improve the risk to return ratio, and smooth the equity curve, among other goals. It has to do with what trade size do you start with, when do you increase it and when do you decrease it?
With the TRENDWAY TRADING SYSTEM, you always start out trading just 2 contracts per trade. Then as your equity balance starts to rise and hits a certain plateau (profit level), the money management system clicks in and increases the number of contracts by a factor of 1. This plateau or profit level is known as the “delta” level. When the next delta level is reached, you again increase the number of contracts per trade. And so on.
This can become quite complicated and hard to administer without some outside help. Fortunately, accompanying the trading system manual, is an Excel Spreadsheet that automatically determines exactly when and where to increase the number of contracts you are trading, and lets you know a day in advance. You have complete control over the determination of the “delta” levels and can specify them according to your comfort level. You can speed them up (more risk – faster profits) or slow them down (less risk and slower profit growth).
Combining the trading system with the money management system and then adding diversification of markets to the mix – as the web site illustrates, and you are as near to the “complete system” as you can get.
GOOD LUCK AND GREAT TRADING
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