It’s a cliche to say that you can’t succeed without a trading plan. You can. It’s just not very likely. There are always geniuses and idiot savants who are just so good at a particular thing, they can break all the rules and still have success. But unless you’re a Jordan, Hemingway, Warhol, or Rain Man, chances are you DO need a plan — and the most critical part of any trading plan is money management.
A trading plan involves a set of rules governing the conditions under which you buy and sell. This is important. But having a trading plan that doesn’t take money management into consideration is like trying to do a triathlon when you don’t know how to swim. Money-management rules need to be part of your plan — it’s at least one third of the game, and if you don’t know what you’re doing, you could find yourself underwater really fast. If you want to get to the finish line, you need to first learn how to swim — and that means establishing money-management rules.
In this episode, you’ll learn:
- How to use the principle of “maximum risk” to protect yourself on individual trades.
- How different risk tolerances hold up after consecutive losses — this should give you plenty to think about.
- How to use Account Drawdown to know when to take your ball and go home — even if you haven’t reached your stop-losses.
- How to use these same principles, in reverse, to know when to take profits — you never make money if you never sell for a gain!
CEO, Wealthpire Inc.
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