Page 113 – Money Management and Market Psychology

There are three components to a trading program: trading method, money management, and market psychology. The vast majority of traders spend most of their efforts  on trading method. Yet the most successful traders will tell you that of the three, trading method is the least important. You will benefit from allocating significant effort to money management and market psychology.

Money management includes setting tight limits on taking profits and stopping losses, and staying realistic with how many of your trades will be successful.  Setting stop losses and then walking away from trading for a few days to see the market from a fresher perspective is highly recommended after a few successive losing trades.  At the same time, make sure not to set stops where everyone else does.  Stop losses are typically placed below or above a recent low or high.  Use this information to set price objectives.

Never allocate more than 10 percent of your trading capital to a single trade. And only start trading when you have funds for at least 30 to 50 trades.

If in doubt, stay out…

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