Money Management by Mark Forrester Think in Odds Most traders have a serious problems thinking in odds because it is against our nature to take on a position without being 100% sure that it will be a success. Losing hurts, it is painful; taking a position knowing that there is a chance of loss is usually avoided. Traders want to "know" what is going to happen and therefore look for the black and white in trading. Black and white thinking does not exist in trading. A trade can be right and still lose. All indicators can be aligned and the trade can still lose. Even if the system is 99% accurate, there is still a chance that the trade will be a loss. Most traders are unable to accept this and it causes frustration. By learning to think in odds, a trader can both vary their trading according to odds of success and accept losing trades a lot easier. The whole concept of odds and probabilities is a subject that most novice traders avoid, but is absolutely one of every professional trader's secrets for success. Trading the financial markets is all about managing risk; nothing is 100% accurate or works 100% of the time. There is always a certain chance, certain odds, and certain probability that a trade will work or wonât work. Even if a trading system generates 99% chance of success, there is still that 1% chance of failure. Nothing in trading is black or white, everything is somewhere in the gray. It is the job of the trader to determine how gray the trade is, what are odds of success. The trader can then adjust their trading based on the probability of the specific trade and the probability of the trading system that he uses. By figuring out exact odds of success, the trader can figure out his edge and maintain it There is an old investing saying about cutting ones losses and letting profits run. What this means is that you should strive to keep your losses manageable, and ensure that no single trade does too much damage. The thinking here is that if you keep the losses small, the profits will take care of themselves. In the case of profits, you can exit the position once you have determined that the price has come very close to your objective area meeting your profit target. But, what exactly is a small loss? What's a large enough profit? There is no one answer, and what is right for one trader will not necessarily be right for another. It all depends on the volatility of the market. When there is a fast market you must adjust your risk in accordance to your entry and exit points. High volatile markets give you the opportunities to make huge profits because when you are correct in a trading decision, the market will move quickly away from you entry point. This will help in staying confident that you will profit from that trade. Inversely, if the trade moves against you, it will take discipline and a quick decision to limit the loss. Also during times of high volatility a trader will get more bang for his buck. Meaning the profitable trades will outweigh any commission costs that a trader would have to consider during times of low volatility. The market will also tell you if your are right or wrong in a very short time, making it easier to just react to the market instead of over analyzing it. In moments of high volatile markets and favorable trading, it is important to push your profits as far as the market takes them. Once you build up a solid lead, a trick is to hide the profit/loss running total at the bottom of your screen. You must understand the nature of the market to make large profits. During the day you must realize that at a point where you are up $5,000 on the day your account may go to $8,000, back to $5,500, back up to $9,000, and from there, perhaps, all the way up to $20,000. See the mistake of quickly taking a profit just because you might not like volatility? Those people who took profits at $8,000 were not around to take the ride up to a $20,000 account. Pretend you are one of those people with the $3,000 gain in your account. Instead of simply protecting your entire $3,000 profit, why not be more aggressive with it?