I signed up with this forum just to repond to this thread. I have been a lurker for a while but wanted to ask a thing or two. When the OP was talking about money management, what exactly do you mean by that? To know when to get out of the trade? Or to know what percent of your portfolio to invest in something? What is it? Also, any books anyone could refer me to? I am just looking at something to explain all the charts and some of the technical indicators. In case it isn't obvious, I just opened a brokerage account and am paper trading right now. I started an online virtual portfolio in high school (in college now) with $500k and thats around $5.2m now but we all know 'virtual' money is not real money! Anyways, I am just starting out and looking for some general direction. Thanks OP for the post too! -clegg
Both. You should know where and when you will be out of a trade before you enter it. And its important to know how much to allocate per trade. Lets say you have a 40k account. If you buy 200 shares of a $25 stock, thats $5000 from your account. If next morning, because of news...stock gaps open against you by 5%... now you're already in the hole for $250 right at the open. (there are rules on how to deal when this happens by the way.) Now, lets say you buy 200 shares of a $60 stock, thats $12,000 from your account. If again next morning, it too gaps open against you by the same 5%.... well thats now $600 you're already in the red at 9:30. So what you must do is adjust the share size depending on the stock price... so you always allocate the same amount. And ofcourse you must also adjust the share size so that you always risk the same amount per play. If your trading plan allows you to risk ... say $100 per play.... then a stop of .50 cents would equal 200 shares. But if that same stock is set up so that your stop is 1.00 ...... then you should only buy 100 shares... so that you're always risking the same. With this in place, have a set amount of risk reward you can work with. It will depend on your time frame and stock type.... but the higher your r/r ratio... the more loses you can have. The lower your r/r ratio... the higher batting average you will need. This is just a small example of money management. I can tell you this..... even if you know very little about the markets.... just being strict with following sound money management, will have you nearly breaking even in the stock market! Even if you know almost nothing about stocks! At the same time, a pro will blow out his account (like so many do) when they throw money management to the wind. Its boring and wont make you rich any time soon..... but its a road you have to walk in order to be around long enough to learn how to trade. Ofcourse, like i said earlier in this thread... im no longer trading in this style because im not trading stocks any more. Trading e-minis only. EDIT: I almost forgot..... the most important thing you can learn is, when NOT to trade, to just sit on your hands. That is the holy grail.
Thanks for the reply. I did some more googling with money management and found some articles, I'll read more into it. Why don't you deal with stocks anymore? Eminis easier to manage? Currently I am virtualtrading some options, mostly just straddles. Saving up some money (as a college student) to invest properly. I won't have the capital to deal with emini's are the moment anyways. I believe most brokers have a high minimum amount to open a futures account. -clegg
Lilduckling, I have been trading for over 15 years. I had the advantage of havign a great, successful mentor who could help me find what worked for me. I occassionally post on these forums and occassionally stop in to read various posts. I did not see this thread you started over a year ago until today. I have no idea why I opened it as it is for "Brand new traders..." I want to say that your opening post in particular and the follow-ups are terrific. Some of the most realistic, accurate advice I have read here or anywhere. I have no idea what the rest of your postings are like, but I thank you for these. Speculator
I absolutely agree, that is a hell of a post Duck, everyone should read it, not just newbs. The biggest problem Traders have is not sticking to the basic fundamentals. BRAVO,BRAVO Rennick