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Searching For A Holy Grail ? Find Out What It Is

 
Post new topic   Reply to topic    iCharts Discussions Forum Index -> Risk / Money Management
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Author Searching For A Holy Grail ? Find Out What It Is
rk_a2003
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Joined: 21 Jan 2010
Posts: 2731

Post: #1   PostPosted: Sat Sep 10, 2011 8:15 pm    Post subject: Searching For A Holy Grail ? Find Out What It Is Reply with quote

Excerpts ( Edited ) Taken from 'Short term Trading Course' By ' Mark Boucher"




Of all the topics in my 10 week summer trading course, I put Money Management first. The reason is that far too many traders focus on the rules and techniques, and not the framework in which they're applied. Yet, among all the traders I have ever talked to who've experienced consistent and enduring success, Money Management is the very foundation of their success.

If there really is a Holy Grail, Money Management is it. Let me summarize all my rules for you now.

The components of good Money Management are as follows:

Your number one goal should always be to Minimize Losses. When you understand risk and the permanent damage that large losses can cause to you trading account, you'll realize that Consistency is the Key. To become consistent in your trading, you have to do more than just learn mechanical rules, techniques, or purchase trading systems. Understanding the Markets is Much More Important Than Methodology.

Once you've laid the foundation of risk control and understanding, you will automatically see the importance of the right money management techniques. Some of these you've heard before, but you may have not fully comprehended their importance until now. Now it should be clear to you why it's important to Always use Open Protective Stops (OPS) and to Always Use Trailing OPS's to Lock in Profits as a Trade Moves in Your Favor. If you don't, you will inevitably suffer a devastating loss that you cannot recover from without adding money to your account.

In addition, too many people place stops haphazardly. Instead you should Always Let the Market's Own Price Action Determine Where An OPS is Placed. There will be areas of support and resistance that provide ideal levels at which to place stops.

When you do your homework and buy into runaway markets, you're likely to get into trades which move strongly in your favor--and perhaps even farther than you initially imagine. In such cases, Use Creeping Commitment to add your position when the risk on your initial position is zero. In that way, you'll be following the old adage, Let Your Profits Run. But don't fall in love with any trade you're in. When in Doubt, Stay Out or Get Out; Do Not Get Back in Until You are Sure About a Position. Remember that there are always plenty of opportunities on the horizon. Focus on the search, not the money you theoretically might have made in sub-optimal trade.

Be careful how you interpret what you read in the paper or watch on CNBC. Price Makes News, News Does not Make Price. So once news comes out through any public venue it is likely to
already have been discounted by the markets. In fact, news often means the opposite of how it appears on the surface so Scrutinize How Markets React to Good and Bad News.

To use a horse racing analogy, too many traders focus on trying to find the right betting system rather than finding the right horse. So in trading, you should always Concentrate Most of Your Time and Effort on Market Selection. Remember that Trading is an Odds Game and concentrating on market selection is one of the things that will tilt the odds in your favor. In addition, don't just look at trading through a microscope. Expand your view and Constantly Devote Time and Effort to the Study of Market, Trading Techniques, and Economic History.

One of the most important things you must start doing today, if you haven't already is: Keep a Trading Journal and Review and Evaluate Your Past Decisions Periodically. I realize that many traders start doing this, then it becomes a mundane, boring task and they fall out of the discipline. Well, don't always expect journal-keeping to be fun. Just do it!

You may have heard that the Trend is Your Friend. But traders think of this as being mainly for long term "buy and hold" investors. In reality, everyone I know who's successful, even day-traders, are looking for the strongest trends and entering them in the midst of small pullbacks or breakouts. When you do this, you will naturally Buy Strength and Sell Weakness. Do what J. Paul Getty did in order to accumulate his fortune: Go Where the Oil is. That is, trade where the strongest runaway trends are. When all is said and done and all the technicals are in place, you should still pay attention to the fundamentals. By doing this you'll be Trading With Fuel on Your Side.

Finally, invest in yourself. Create order in your inner world and it'll be manifested in the outer. Put the Value-Added Wealth Equation on Your Side.

In closing. . .
Over the next week, make a 100% effort to apply these rules to your trading. Reading about these things is good, but only actually using them in the real world will lead to mastery.

Next week, we'll take an in-depth look at Relative Strength. Relative Strength is one of the most underrated, and yet proven technical tools available. Relative Strength is a very simple concept. Let's say we're talking about the stock market. It simply looks at the percentage change of a stock over a defined period and compares that change to all other stocks.

To me, using Relative Strength properly is sort of like betting on a horse race after the race is 3/4 of the way done. You get to see who's out in front and bet on that horse.
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vinay28
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Joined: 24 Dec 2010
Posts: 11748

Post: #2   PostPosted: Sat Sep 10, 2011 8:35 pm    Post subject: Reply with quote

Thanks rk
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