The Most Important Trading Strategy That No Traders Can Afford Not To Know By Andy Poon At Isnare.com Ezine Articles

Whether you are investing in stocks, futures, forex or options, you know that there are many ways to trade them. With every school teaching different systems, methods and strategies, sometimes it is difficult to distinguish which is the most powerful of them all?

Almost every trading books and trading seminars that I have come across failed to emphasize which is the most powerful of them all is Money Management.

What is money management? In short, it is about preserving your capital and keeping you in the market for long. You can know the strategy that make you the highest percentage return in the shortest time but if you do not have an excellent money management system, it will not be for long that you got kick out of the market.

In my first few years in trading, I was chasing after trading books, seminars, workshop to find the fastest way to profit in the market. It was until one day when I had nothing to do when the market was not open for trading; I found out that the most important strategy in trading is your money management.

Some may be asking, how did I conclude that the most important is money management?

I did a calculation to prove to myself.

Let’s assume that I start trading using $10, 000. And my money management system is 10-10-30. Meaning to say, the first “10” represent that I will not put more than 10% of my capital into one trade. The second “10” represents the maximum I am willing to risk from my investment. In other words, my stop loss is at 10%.

The “30” is the profit target I set for myself. So what is means is I will exit my trade once I hit my profit target of 30%.

I try to put the system on a 60/40 accuracy trading method (60% losing trades/40% winning trades). And guess what? If just based on this money management system and stick to it strictly, I am able to make a 6% net portfolio growth based on 10 trades.

Based on the assumed starting capital of $10, 000, the example shows that I lost $600 in those 6 trades but I profit $1, 200 in that 4 trades. Over net profit is $600 or 6%.
This is when people always ask me, “Which is the most powerful strategy that you use to trade?”, I will always answer, it is money management.

Different people have different risk tolerance. So there is no money management system that will suit everyone. I suggest you take some time to review your money management system and if you don’t have one, you MUST start one!

By starting one,you can be sure that you will be in the market long enough provided that you follow it. Trading can be as simple as just following rules. Can you do it? Yes you can! But the real question is, will you do it?

Also, you must remember the 2 rules of trading:

1. Never lose money

2. Never forget the first rule

Preserve your capital and even if there is a loss, take a small loss and run...

If you are in search for a real options strategy to add into your arsenal, then I recommend you my book, Huge Profits Options Trading with Simple Analysis.

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