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| Survival |
Before you begin learning all there is to know about money management (MM). I think you should be clear about it's purpose in trading so you comprehend how important it is to your survival as a trader.
Put simply, without proper management, you will not survive, PERIOD.
Your goal as a trader is to position yourself in a way so that you can survive long enough to learn how to trade. Most are in such a rush for quick profits that they position themselves in a way that mathematically guarantees their failure. It does not matter how good your trading system is, if you are right 80% of the time and do not have proper money management you are setting yourself up for failure. The lack of it's understanding accounts for a good share of the losers, big and small, that wash out of the markets every year.
The next time you get a chance, take a second to look at some of the outrageous ads some of these guys put in your face and you will always notice three things:
There is no strategy that can predict the future, most educated people rationally understand that the future cannot be predicted, yet they some how think if they pay a large sum of money, they can avoid that reality.
That is not to say that these vendors are selling a bad product, just to say that they are only selling you less than half of what you need to be successful with their product. There is nothing wrong with buying a trading system, they can save you time vs. developing one on your own. Just understand that the trading system only contributes about 10% to a consistently profitable trader. You may not believe that statement quite yet, but keep reading, and you will.
THE GOOD NEWS: The good news is you don't need to pinpoint tops and bottoms or predict the future in order to make money trading! Instead with the proper money management and even a mediocre trading system you will start to make money by waiting for the future, instead of predicting it. Now that sounds a bit more realistic doesn't it?
To Fully Understand this Key Concept read Trading for a Living: Psychology, Trading Tactics, Money Management |